Italy: Taxing dividends paid to nonresident non-commercial entities (NCEs) less favorably than dividends paid to resident NCEs violates EU law (Supreme Court decision)
50% dividend exemption must be extended to all comparable NCEs, including nonresident ones.
The Supreme Court recently held that taxing dividends paid to a nonresident charitable trust less favorably than those paid to a comparable Italian non-commercial entity (NCE) constitutes a restriction on the free movement of capital, which is prohibited under EU law. The 50% dividend exemption, resulting in an effective tax burden of 12%, must be extended to all comparable NCEs, including nonresident ones.
The decision clarifies that the comparability between entities must be assessed based on their actual functions and purposes, rather than their legal form or country of residence. An entity's tax treatment in its country of residence is not relevant for Italian tax purposes. In addition, the mere holding of shares does not constitute a commercial activity. A foreign charitable trust thus can be considered functionally equivalent to an Italian foundation or NCE.
Read a June 2026 report prepared by the KPMG member firm in Italy