The Italian Tax Authorities (IRA) issued a response to a private tax ruling request¹ concerning the process available to a United States (US) investor to benefit from relief at source from the reduced treaty rate of 5% on Italian source dividends, as provided for by Article 10 paragraph 2, letter a) of the Italy-US Tax Treaty² (the Treaty).

The ruling applicant (i.e., a US corporation, principal investment firm) was a shareholder of an Italian asset management company (AMC), holding 35% of its share capital and entitled to treaty benefits.

For the purposes of the aforementioned treaty benefit, the applicant was able to timely provide the AMC, which acted as the withholding agent, with the following documentation:

• A certificate of tax residence issued by the US Internal Revenue Service (IRS), i.e., "Form 6166 – Certification of US Tax Residency"
• An official communication from the IRS certifying its inability to certify the tax residence by forms that are different from Form 6166

In addition, the applicant was able to provide the AMC with payee statements provided by "Form A," the form approved by the Director of the Italian Tax Authorities by Ruling issued on 10 July 2013, to apply for a reduced rate of tax on income paid to nonresidents according to the provisions of the Treaty.

The applicant, however, was not be able to also provide the AMC with the "Tax Certification Authority" (the Certification) provided in the same Form A, to attest its tax residence in the US for the purposes of the Treaty.³

Due to the inability of the US Investor to provide the fully completed Form A, the AMC, acting as the withholding agent, refused to apply the reduced treaty rate at source.

The applicant was therefore exposed to the risk of facing a long and expensive tax refund treaty claim proceeding.

In this context, the applicant decided to file a request for a tax ruling from IRA asking it to confirm the requirements to benefit at source from the provisions of art. 10 of the Treaty.

In its ruling, issued in December 2017, IRA confirmed that the timely production of both the following documents would meet the formal requirements for accessing the benefits of the Treaty when dealing with the local withholding agent:

• The payee statements provided by the "Form A"
• Form 6166 in lieu of the "Tax Certification Authority" attesting the tax residence of the claimant for the purposes of the Treaty

As a response to an incidental question on whether Form 6166 can also attest to the substantive requirements to access the Treaty, IRA considered that such matter cannot be addressed through a tax ruling (as this kind of substantial audit is delegated to the tax audit activity that IRA may perform with the local withholding agent).

This tax ruling response is limited in its application to the US investor it was issued to. Nevertheless, US institutional investors, including qualifying US funds, entitled to a reduced treaty rate and facing the same type of answer from an Italian company acting as a withholding agent may consider requesting a ruling from IRA on the confirmation of the formal eligibility for the application of the 5% or 15% dividend withholding tax relief at source, provided for by Article 10 of the Treaty.

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ENDNOTES

¹ "Agenzia Entrate – Interpello n. 954-1314/2017."

² Convention between the Government of the United States of America and the Government of the Italian Republic for the Avoidance of Double Taxation – executed in Washington DC, on 25 August 1999.

³ As IRS could not sign any certificate different from Form 6166.

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CONTACTS

For additional information with respect to this Alert, please contact the following:

Studio Legale Tributario, Milan

• Giuseppe Marco Ragusa
  marco.ragusa@it.ey.com
• Alberto Giorgi
  alberto.giorgi@it.ey.com

Ernst & Young LLP, Financial Services Desk, New York

• Sarah Belin-Zerbib
  sarah.belinzerbib@ey.com

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ATTACHMENT

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