With few decisions of the beginning of July the Italian Supreme Court (Corte di Cassazione) decided that the withholding tax levied on dividend distributions made by Italian companies to EU and non-EU investment funds violated the principle of free movement of capital of article 63 of the Treaty on the Functioning of the European Union (TFEU), since foreign investments funds were subject to a taxation higher than that of an Italian investment fund under the same circumstances.
In its decisions the Supreme Court ruled in favor of the claims for refund of the withholding taxes levied on dividends paid to a German investment fund in 2003 and on dividends paid to six USA investment funds from 2007 to 2010.
At that time Italian investment funds receiving dividends were subject to a 12.5% tax on the annual increase in their net asset value (such rate could be reduced to 5% or 0% under specific circumstances), while foreign investment funds were subject to the 27% domestic withholding tax that could be reduced pursuant to the applicable tax treaty.
The German investment fund claimed the full refund of the 15% withholding tax levied pursuant to the tax treaty between Italy and Germany because – under the same circumstances – an Italian investment fund would have been subject to no taxation (Italian investment funds participated only by certain non-resident investors were exempt from taxation).
The USA investments funds claimed the refund of the difference between the 15% withholding tax levied pursuant to the tax treaty between Italy and the USA and the 12.5% tax that would have been paid (on its net income accrued in the relevant tax period) by an Italian investment fund.
The tax regime of Italian investment funds examined by the Supreme Court was changed starting from July 1, 2011 but the same reasoning may apply also to new tax regime. Italian investment funds are no longer subject to taxation on the net income accrued but exempt, thus determining an even more discriminatory treatment in comparison with foreign investments funds.
Only from January 1, 2021 further to a procedure by the EU Commission to assess the existence of a violation of the EU fundamental freedoms, the withholding tax was abolished with respect to dividends paid to qualified EU investment funds still applies to non-EU investment funds.
The decisions of the Supreme Court – which are in line with the EU Court of Justice case law – can positively influence the decisions of the courts of merit in Pescara that are now deciding hundreds of claims of refund filed by foreign investment funds and rejected by the Revenue Agency.
EU and non-EU investment funds that have not filed the refund claim, shall do so. Refund claims may be filed within 48 months from the date of payment of the dividend withholding tax.
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