Italian Supreme Court rules on domestic implementation of EU Parent-Subsidiary Directive

Overview

The Italian Supreme Court on December 13, 2018, issued a decision (n. 32255/2018) in a case concerning the domestic implementation of the European Union (EU) Parent-Subsidiary Directive.

The Italian Supreme Court held that there must be at least partial taxation of the dividends in the Member State of the parent company in order to benefit from the withholding tax exemption provided in the EU Parent-Subsidiary Directive.

The decision contradicts EU law and the directive’s purposes and aims, as well as its text. Although the Italian Tax Authorities may not publicly endorse the decision, some tax auditors might leverage the content of the decision and deny the Directive’s benefit where the dividend was not taxed in the hand of the parent company in its country of residence.

The takeaway

The Italian Supreme Court held that there must be at least partial taxation of the dividends in the Member State of the parent company in order to benefit from the withholding tax exemption provided in the EU Parent-Subsidiary Directive.

The decision contradicts EU law and the directive’s purposes and aims, as well as its text. Although the Italian Tax Authorities may not publicly endorse the decision, some tax auditors might leverage the content of the decision and deny the Directive’s benefit where the dividend was not taxed in the hand of the parent company in its country of residence.