Italian court recognises retroactive exemption on dividends to foreign investment funds


In judgment No. 49/2022, the first instance Court of Pescara recognised that distribution of dividends from a resident company to a non-resident fund must be granted with an exemption regime from the Italian taxation authority.

In particular, the decision of the Tax Court is based on recognition that in the years 2014, 2015 and 2016, subject to judgment, the Italian taxation regime for foreign funds was in contrast with the principles of free movement of capital (provided for by articles 63 and 49 of the TFEU), chiefly because exemption was granted only for receiving resident funds.

On 1 January 2021, the Italian taxation regime for foreign funds was modified, thus overcoming (at least for the future and limited to funds established in EU member states and in states adhering to the EEA Agreement that allow for an adequate exchange of information) the violation of the aforementioned principles of freedom of movement of capital and establishment.

Indeed, article 27 (3) of Presidential Decree No. 600/1973 (due to changes made by article 1 (631), Law 30 December 2020, no. 178) introduced the exemption regime for dividends paid to non-resident investment funds compliant with Directive 2009/65/EC (UCITS IV Directive). If non-compliant with it, the fund manager is subject to forms of supervision in the country in which the fund is established, pursuant to Directive 2011/61/EU (AIFM Directive), which was established in EU member states and in states adhering to the EEA Agreement that allow an adequate exchange of information. We refer to our previous Alert (here) for further information.

The conclusions of the above judgment are significant in two respects: although the previous regulatory framework was in contrast with the aforementioned EU principles, it is recognised that the same principles were applicable even before 2021 (i.e. before the entry into force of the new internal exemption regime), which was widely recognised by the European Court of Justice (see judgments C-480/16, C-480/19, C-156/2017, and recent case C-545/19 of 17 March 2022).

This decision undoubtedly strengthens the position of non-resident funds that have entered into disputes aimed at reimbursing the withholding tax applicable in Italy at the time of the distribution of dividends prior to 2021, and the position of those who intend to take this path.

Furthermore, it is worth noting that the freedom of movement of capital provided by art. 63 of the TFEU also applies to subjects outside the EU. In Italy, however, a discriminatory profile continues to exist against these subjects even after the mentioned changes made to art. 27 (3) of the Presidential Decree no. 600/1973 (see judgment C-190/12, which reaffirms this position for non-EU funds established in countries with which Italy has stipulated an agreement against double taxation and guarantees the adequate exchange of information).

In terms of procedural matters, the refund application must be submitted within the deadline of 48 months from the date of payment of taxes.

For more information on this judgment and taxation issues in Italy, contact your CMS client partner or local CMS experts: