Executive summary

In Decision No. 32467 of 23 October 2025, the Italian Supreme Court (ISC) upheld the position of the Italian Tax Authorities (ITA), denying Beneficial Owner (BO) status to a Danish company (DanCo) receiving dividends from an Italian subsidiary (ItaCo). The ISC considered the ultimate parent company located in the United States (USCo) to be the BO of the dividend payment. The ISC stated that DanCo lacked both legal and factual power of disposal over the dividends, which had been transferred to a centralized cash pool under a cash-pooling arrangement, formally entrusted to a Dutch company (DutchCo), while the funds were actually made available exclusively to USCo through a Swiss branch participating to the pooling.

Case at issue

The case concerned a dispute arising from an ITA tax assessment against ItaCo, challenging the company's failure to apply the 27% withholding tax (WHT)(ratione temporis applicable) on outbound dividends paid in 2011 to DanCo, which was owned by USCo.

The ITA claimed that an amount of cash corresponding to the dividends received by DanCo was transferred to a common cash pool managed by DutchCo, which, acting as pooler, centralized the management of the multinational group's liquidity and coordinated the financial flows of the participating entities.

According to the ITA, the arrangement constituted an abusive use of the tax treaty between Italy and Denmark (Denmark-Italy DTT), because DanCo was not entitled to the WHT relief provided by Art. 10(2)(a) of the Italy-Denmark DTT (i.e., 0% WHT), given that it had allegedly been acting as a mere conduit company interposing itself vis-à-vis the BO of the dividends (i.e., USCo, according to the ITA).

ItaCo appealed the tax assessment before the competent tax court claiming that it had complied with all the requirements in Article 10(2)(a) of the Denmark-Italy DTT to apply the WHT relief.

Both the first and second instance tax courts rejected ItaCo's defensive arguments and confirmed that USCo had to be considered as BO of the dividends. The judges also recognized that the dividends should have been subject to the 5% WHT provided by Article 10(2)(a) of the tax treaty between the US and Italy (rather than to the full Italian statutory WHT).

ItaCo subsequently appealed the second-instance decision to the ISC, again challenging the alleged erroneous interpretation of the BO requirement under the Denmark-Italy DTT adopted by the judges.

Supreme Court's ruling

The ISC ruled in favor of the ITA by focusing on the following aspects of the case.

The ISC cited certain prior ISC decisions (not strictly related to dividends) under which the BO requirement would be satisfied only if (1) the recipient could be deemed to be in control of, and independently manage, the relevant income flow and (2) there was no indicia of artificiality and abusiveness, as outlined by the case law of the European Court of Justice. The mentioned decisions stated that three separate tests must be passed:

1. The substantial business activity test: To assess whether the company receiving the payments is an artificial arrangement
2. The dominion test: To assess whether the recipient can freely dispose of the income received and is not obliged to pass on the income stream to a third party, either by contract or based on factual analysis
3. The business purpose test: To determine whether triangulation is designed only for the purpose of tax savings or should be considered to be economically motivated

The ISC also determined that the taxpayer did not provide any evidence demonstrating that DanCo was the BO.

The ISC noted certain parameters that led the Court to consider USCo as the BO of the dividends and concluded that DanCo failed the three tests. More in detail:

1. In the view of the judges, DanCo was not carrying out any business activity or any pure sub-holding activity, considering the absence of any shareholding management activity (failing the substantial business activity test).
2. DanCo lacked both legal and factual power of disposal over the dividends, because the dividends were paid to the account of a recipient that was included in an intercompany cash-pooling arrangement, formally led by a DutchCo while in reality being made available exclusively to USCo through a Swiss branch (failing the dominion test).
3. USCo exercised the overall management and decision-making concerning the European activities, whereas DanCo constituted a mere interposed conduit serving a tax avoidance scheme (failing the business purposes test). According to the judges this was confirmed by several indicators, including long-standing email correspondence between USCo and the European companies belonging to the group.

Implications

The decision highlights that simply using cash-pooling agreements — despite representing a widespread and well-established treasury practice among multinational groups, grounded in a strong business rationale regardless of the individual flows of the pooled accounts — may in itself increase the risk of assessment regarding the BO status of a cross-border income recipient participating to the cash pool.

The use of pooled accounts for the collection of dividends may, per se, expose taxpayers to a risk of challenge under the dominion test, because use of the accounts could be interpreted as depriving the immediate recipient of legal and effective power over disposal of the funds.

Pending confirmation that this decision will remain isolated,¹ multinational groups should carefully review their existing dividends (and interest and royalties) payment schemes involving cash pooling to help mitigate potential increased exposure to tax scrutiny.