Italy: Withholding tax on dividends paid to U.S. pension funds; refund opportunities (Supreme Court decisions)

Two decisions concerning Italian tax treatment of dividends paid to U.S. pension funds

Two decisions concerning Italian tax treatment of dividends paid to U.S. pension funds

The Italian Supreme Court recently issued two decisions confirming that the Italian tax treatment of dividends paid to U.S. pension funds is discriminatory and breaches EU law.

KPMG observation

These decisions are consistent with a previous Supreme Court decision finding in favor of non-EU collective investment funds, as well as prior judgments of the Court of Justice of the European Union (CJEU). Read TaxNewsFlash


U.S. pension funds filed several refund claims for withholding tax levied on dividends received during 2008 - 2009, based on the incompatibility of the provisions of the U.S.-Italy income tax treaty with the freedom of movement of capital within the EU. The funds requested a refund of the difference between the income tax treaty rate of 15% (that is, the tax treaty rate levied on dividends paid to U.S. pension funds) and the Italian substitute tax of 11% (that is, the rate that would have applied to Italian pension funds on the net income earned).

Supreme Court decisions

The Supreme Court held that the funds were entitled to a refund of the difference between the tax treaty rate of 15% and the domestic rate of 11%. The court stated that the differing treatment of U.S. pension funds and Italian pension funds may hinder investments, thus resulting in a restriction on the free movement of capital. The court made it clear that the fact that the regime applicable to U.S. funds provides for a tax levy only at the time of payment of pension benefits, while Italian funds are also taxed on income at the time of its production, cannot justify the different tax treatment. 

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.

Read a September 2022 report [PDF 287 KB] prepared by the KPMG member firm in Italy


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