Italy: Withholding tax on dividends paid to U.S. collective investment funds; refund opportunities

A decision concerning Italian tax treatment of dividends paid to investors in the United States

Decision concerning Italian tax treatment of dividends paid to investors in United States

The Italian Supreme Court on 6 July 2022 issued a decision confirming that the Italian tax treatment of dividends paid to investors in the United States is discriminatory and is in breach of EU law.

KPMG observation

This case represents the first decision of the Italian high court finding in favor of non-EU entities, and is viewed as being consistent with prior judgments of the Court of Justice of the European Union (CJEU).


The taxpayer—a U.S. mutual investment fund—filed several refund claims for withholding tax levied on dividends that were received between 2007 and 2010.

The basis for the refund claims was an assertion that certain provisions of the Italy-United States income tax treaty were incompatible with the standard for the free movement of capital under EU law. It was asserted that the tax treatment was discriminatory and thus contrary to EU law in that it could discourage investment funds established in a non-EU country from investing in companies established in the EU, and further, it could discourage investors in the EU from acquiring shares in non-resident investment funds.

The taxpayer, thus, requested a refund of the difference between the income tax treaty rate of 15% (that is, the tax treaty rate levied on the dividends distributed to U.S. collective investment funds) and the Italian substitute tax rate of 12.5% (that is, the rate that would have applied to Italian investment funds with regard to the annual increase in the net asset value). 

Supreme Court’s decision

The Supreme Court held that the taxpayer was entitled to a refund of the difference between the tax treaty rate of 15% and the domestic rate of 12.5%.

The high court explained that even if a taxpayer is not resident in an EU Member State, the free movement of capital rule still applies, and furthermore, that EU law prevails over any conflicting measures of income tax treaties or domestic rules. As the court noted, the grant of a lower tax rate (or an exemption) to Italian collective investment funds while imposing a higher rate of withholding tax on outgoing dividends (that are distributed to foreign entities) would be a restriction on the free movement of capital, thereby dissuading non-EU entities from investing in Italy. 

KPMG observation

Non-EU entities that have invested in Italy and been subject to withholding tax need to consider filing refund claims for withholding tax. If such a refund claim were to be successful, interest would also be available.

If the Italian tax authority does not reply within 90 days of the date when the refund claim is filed (such silence being deemed to be a refusal of the refund claim), the next step would be to seek review by the Italian tax court. This judicial action would need to be initiated within 10 years of the initial filing date.

Lastly, note that as of 1 July 2011, Italian investment funds are no longer subject to tax; rather, tax is levied exclusively on the investor when the dividend is received. This means that a full refund of withholding tax for both EU and non-EU entities may be requested.

Read a July 2022 report [PDF 236 KB] prepared by the KPMG member firm in Italy


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