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08 September 2022 Italian Court of Cassation holds EU regime on dividend distributions is also applicable to pension funds not qualifying as EU/EEA
By judgment No. 25963 (referred to as “the case”),1 the Italian Court of Cassation (CC) affirmed that the lower dividend withholding tax rate of 11%2 applicable to foreign qualifying EU or EEA pension funds was also applicable to a United States (US) pension fund3 that in fiscal years 2008 and 2009 received dividend distributions from Italian-listed securities. The US pension fund, to which dividends had been paid with application of either the full internal dividend withholding tax (i.e., 27%)4 or the conventional withholding tax of 15%, had filed for reimbursement contending that the application of either the full internal dividend withholding tax of 27% or the conventional withholding tax of 15% instead of the lower dividend withholding tax of 11% available to qualifying EU or EEA pension funds constituted a restriction in violation of the principle of free movement of capital under Article 63 of the TFEU. In more detail, the CC stated that the 11% dividend withholding tax provided by article 27 para 3 of local Presidential Decree No. 600/1973 may represent an unlawful restriction to the free movement of capital principle where it does not provide for the reduced 11% withholding tax rate also in favor of US pension funds. The case examined by the CC concerns refund claims filed with the Italian tax authorities (ITA) by a US pension fund that received in fiscal years 2008 and 2009 dividend distributions from Italian-listed securities that applied either the full internal dividend withholding tax of 27%, pursuant to article 27 para 3 of local Presidential Decree No. 600/1973 or the 15% withholding tax (WHT), pursuant to article 10 of Italy (IT)-US Double Tax Treaty (DTT), while the applicant US pension fund held that the dividend should have benefited from the reduced 11% WHT also provided by the same article 27 para 3 of local Presidential Decree No. 600/1973. The applicant US pension fund made a claim for a refund of the difference between the 27% or 15% WHT and the 11% rate by asserting that the dividend WHT withheld at the 27% or 15% rate was unlawful and in breach of the principle of free movement of capital provided by the TFEU.5 After a negative outcome from the appellate tax court, the US pension fund appealed before the CC contending that the appellate judges did not provide an interpretation of local provisions under article 27 para 3 of local Presidential Decree No. 600/1973 in line with the principle of free movement of capital. The CC ruled in favor of the appeal filed by the US pension fund and annulled the appellate judgments by also providing a final judgment on the merits of the cause (i.e., by not remitting the judgment to the appealed second degree tax court in order to state about the merit of the refund).
Judgment No. 25963 is the first positive CC decision in favor of non-EU pension funds based on non-discrimination principles and that allows for non-EU entities to benefit from TFEU principles and it is precedential case law to be used in order to:
Giuseppe Marco Ragusa, FSO Italy Tax and Legal Leader | marco.ragusa@it.ey.com Paolo Zucca, FSO Global Compliance and Reporting - Wealth Asset Management | paolo.zucca.@it.ey.com Antonfortunato Corneli, FSO International Tax and Transaction Services – Transfer Pricing | antonfortunato.corneli@it.ey.com Giancarlo Tardio, FSO International Tax and Transaction Services | giancarlo.tardio@it.ey.com Gabriella Cammarota, FSO Indirect Tax - Wealth Asset Management | gabriella.cammarota@it.ey.com Alberto Giorgi, Business Tax Advisory - Tax Policy and Controversy | alberto.giorgi@it.ey.com Dividend withholding tax of 11% that would have been applied to dividend paid out to foreign pension funds qualifying EU or European Economic Area (EEA). Dividend withholding tax of 27% that would have been applied to dividend paid out to foreign pension funds not qualifying EU or European Economic Area (EEA). Exempt contributions, Taxed investment income and capital gains of the pension institution, Taxed benefits. Exempt contributions, Exempt investment income and capital gains of the pension institution, Taxed benefits. In this regard, please note that the relevant statute of limitations is 48 months since the dividend WHT has been levied i.e., all or part of 2018 may still be covered if filing during 2022. Document ID: 2022-5860 | |