Italy: Luxembourg fund exempt from withholding tax on dividends from Italian companies (court decision)

A case concerning whether Luxembourg UCITS in the form of a SICAV was exempt from withholding tax on dividends

Luxembourg fund exempt from withholding tax on dividends from Italian companies

The Italian provincial tax court of Pescara on 7 February 2022 held that a Luxembourg UCITS (Undertakings for Collective Investment in Transferable Securities) in the form of a SICAV (Société d'investissement à Capital Variable) is entitled to a refund of the withholding tax imposed on dividends distributed by Italian companies.

The Luxembourg UCITS SICAV claimed refunds for withholding tax levied on dividends received in the years 2014, 2015, and 2016, arguing that the imposition of withholding tax on Luxembourg UCITS SICAVs—while Italian UCITS SICAVs were exempt from withholding tax under Italian law—was incompatible with the freedom of movement of capital under the EU Treaty. Relying on other cases involving discriminatory treatment based on tax residence decided by the Court of Justice of the European Union (CJEU), the Italian tax court agreed with the claimant.

KPMG observation

As of 1 January 2021, Italian law was changed to provide that dividends distributed by Italian companies and received by foreign UCITS are entitled to the same favorable treatment previously available only to UCITS established in Italy.

Foreign UCITS subject to withholding tax in Italy prior to 2021 may want to consider filing refund claims and initiating court proceedings. Withholding tax refund claims may be lost if no court proceedings are initiated within 10 years after the filing of the refund claim.

Read a February 2022 report prepared by the KPMG member firm in Luxembourg


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