Italy – Favourable decision by the Provincial Tax Court of Pescara


Italy – Favourable decision by the Provincial Tax Court of Pescara entitling tax-exempt foreign foundations to withholding tax refunds

17 October 2019

Operational Tax News

In its decision n°115/2019, the Provincial Tax Court of Pescara (the “Tax Court”) concluded that the imposition of Italian withholding tax (“WHT”) on dividends paid to tax-exempt foreign foundations is discriminatory, given that Italian foundations benefit from lower taxation on the same dividends.



The case originates from a dividend WHT refund claimed by a German foundation (the “Foundation”) on the difference between (i) the WHT applicable based on the Double Tax Treaty concluded between Italy and Germany (the “DTT”) and (ii) the lower WHT applicable based on the Italian national law to Italian foundations. The Italian Tax Authorities denied the refund by claiming that the Foundation was tax-exempt in Germany.

The Foundation appealed to the Tax Court which overruled the decision of the Italian Tax Authorities by applying the principle established by the European Court of Justice (“ECJ”) (C-540/07) according to which: “The difference in treatment between dividends distributed to companies established in other Member States and those distributed to resident companies does not totally disappear unless the tax withheld at source under national legislation can be set off against the tax due in the other Member State in the full amount of the difference in treatment arising under the national legislation”.

In the case at hand, the Court concluded that when dividends are not taxed at the level of the Foundation, the tax withheld at source could not be offset against that Foundation’s tax liability. Therefore, as the Italian WHT cannot be offset in Germany, in view of the ECJ principle (described above), a difference in treatment remains between dividends distributed to German foundations and those distributed to Italian foundations.

According to the Court, this difference in treatment cannot be compensated by the application of the DTT. As a result, the Foundation should be entitled to a withholding tax refund in order to eliminate the economic double taxation.


Refund opportunities

This decision is favourable to foundations that are tax-exempt in their country of residence and that have suffered Italian WHT.

PDF - 131kb


Eric Centi
Financial Services Tax
T +352 45145 2162

Nenad Ilic, CFA
Tax - GFSI
T +352 45145 2046



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