Italy: Beneficial ownership of dividend income based on parent-subsidiary directive (Supreme Court decision)
A Supreme Court decision on beneficial ownership in the context of divided payments.
The Italian Supreme Court of Cassation in early September 2024 issued Decision No. 23628 on beneficial ownership in the context of divided payments.
Overview
A Dutch company, receiving dividends from its Italian subsidiary between 2013 and 2016, requested a tax refund based on the parent-subsidiary directive in 2017. The request was denied, leading to an appeal to the Supreme Court.
Referring to a prior CJEU decision, the Supreme Court held that meeting a beneficial ownership requirement represents a critical element for the proper application of the parent-subsidiary directive.
The Supreme Court clarified that beneficial ownership requires meeting three autonomous tests:
- The substantive business activity test: Focused on whether the entity receiving the dividends conducts genuine economic activity
- The control test: Focused on whether the recipient can freely dispose of the income or is required to pass it to a third party
- The business purpose test: Evaluated whether the entity’s involvement in cross-border dividends serves a legitimate business purpose or exploits favorable tax treatment
The Supreme Court noted that the parent company was engaged in real business activity and had an operational presence in the Netherlands, that it retained a significant part of the dividends received, and that it had been set up in the Netherlands even before the adoption of the parent-subsidiary directive.
Based on the above, the Supreme Court upheld the taxpayer’s appeal and referred back to the Court of Second instance for a final ruling on the facts, in light of the guidelines provided by the Supreme Court.
Read a November 2024 report prepared by KPMG's EU Tax Centre