1. Tax credit on dividends from foreign sources
The AIDC rule of conduct no. 227/2025 assesses the options for the recovery of taxes paid abroad on dividends, even where the latter are taxed in Italy in the hands of individuals through the 26% rate substitute tax. Indeed, according to the Italian Tax Authorities when an income is subject to a substitute tax the recipient is prevented from benefitting from a tax credit.
The analysis takes up the provisions of the Italian Supreme Court’s decision no. 25698 of 1 September 2022 according to which an individual residing in Italy can deduct taxes paid in the United States from the Italian 26% substitute tax on dividends.
This is because the Italy-United States Double Tax Treaty denies the right to a relief to the extent that the income derived by such resident is subject to a substitute tax in Italy pursuant to an election made by the taxpayer; if, however, the levy of the substitute tax is mandatory, then the foreign tax credit must be granted.
2. No foreign tax credit is granted with respect to business profits without PE
According to the Italian Supreme Court decision no. 1312 of the 20 January 2025, no foreign tax foreign tax credit can be granted pursuant to Art. 165 of the TUIR if the income received by the Italian taxpayer qualifies as business profit (art. 7 of the OECD Model Convention) and the taxpayer has not a permanent establishment in the other State (in the case at stake, Romania).
The Court also decided that, in similar fact patterns, the penalties for filing an unfaithful tax return have to be applied anyway and the taxpayer cannot maintain that such penalties are not due because there is an objective uncertainty on the scope of the tax credit regulation.
3. Transfer of residence in countries with privileged tax regimes
The Italian Supreme Court decision no. 1292 of the 20 January 2025 ruled on the presumption of residence pursuant to Art. 2(2-bis) of the TUIR; the rule provides that Italian citizens who have transferred their residence in low taxed countries are presumed to be resident in Italy, unless proven otherwise.
In the present case, the Italian Supreme Court did not consider merely formal data to be sufficient to prove the foreign residence in a low-tax State (the Principality of Monaco), such as the individual’s AIRE registration, lack of family ties with Italy, a property available in Monaco, home insurance taken out in Monaco, cars owned with Monegasque number plates, electricity consumption proving the use of the home in Monaco, Monegasque identity document, Monegasque driving licence as well as the tax returns submitted abroad and the payment of pension contributions in Monaco.
These elements were contradicted by other factual data, which emerged from criminal investigations, which showed the individual’s constant presence in Italy, the presence of a house of habitual residence in Italy, as well as a partner in Italy, and the residence of all his family members in Italy.
4. Tax domicile at the “old” address if the transfer of registered office abroad is fictitious
The Italian Supreme Court decision no. 1075 of the 16 January 2025 confirmed that a company’s tax domicile is established, pursuant to Article 58 of Presidential Decree No. 600/73, in the municipality where the company has its registered office and, only as a residual measure, at its administrative headquarters, location of a secondary office or place where the activity is prevalently exercised.
According to Article 31 of the Presidential Decree No. 600/73, the tax domicile that can be identified at the time the tax return is filed, or should have been filed, indicates which Tax Authority has the powers to carry out any tax assessment.
In the case at hand, the competence of the Italian Tax Authority was recognised in relation to the assessment on a limited company registered in Italy which failed to present a tax return in 2005 and 2006. The registered office was transferred to Brazil in a communication on the 1st of August 2006, appointing as a director by a Brazilian citizen.
The Supreme Court decided that the former Italian office (located where the registered office of the company was) shall remain competent to issue an assessment, since the cancellation from the commercial register was not followed by the actual transfer of the registered office abroad, as the Italian Supreme Court ascertained the fictitious nature of the supposed transfer.
5. New VAT number following merger of a foreign company with a PE in Italy
According to the Italian Tax Authorities, which published its statement of practice no. 1 of 16 January 2025, in the case of a merger by incorporation of a permanent establishment with a VAT position in Italy in a newly incorporated company, a new VAT number must be issued for the new company through the submission of AA7/10 form.
6. In-bound tax regime and incentives for lecturers and researchers can be combined
With its answer to ruling no. 16 of the 28 January 2025, the Italian Tax Authorities has revisited the subject concerning the compatibility between the preferential regimes relating to the relocation of individuals to Italy, proposing an unprecedented approach with specific regard to the simultaneous fruition of the new in-bound workers regime (Article 5 of Legislative Decree no. 209/2023) and the incentives for lecturers and researchers (Article 44 of Legislative Decree No. 78/2010) in the same fiscal year, provided, of course, that the incomes falling within the scope of the two regimes are not the same.
This reasoning was upheld because there is no express preclusion on the possibility to apply the new in-bound workers regime and the other beneficial tax regimes available for workers transferring their tax residence to Italy.
7. Fees for technical services provided to companies resident in Egypt
According to the ruling no. 13 on the 28 January 2025 issued by Italian Tax Authorities, IT support services carried out by an Italian company in favour of an Egyptian company are considered “management fees”. Therefore, the payments do not fall within the scope of the “Other income” article being Article 22 of the Italy-Egypt Double Tax Treaty, which provides for the exclusive right to tax of the residence State, nor does fall under the scope of Article 7 on “Business profits”, which provides for the exclusive right to tax for the residence State of the recipient in the absence of a permanent establishment in Egypt of the Italian company (a circumstance which had been verified in the present case).
Therefore, the fees are taxed in both states, and so, the Italian company is consequently entitled to deduct from IRES the taxes paid in Egypt, as it is a final tax, pursuant to Article 165 of the TUIR.
8. Concept of fixed base under tax treaty law
The Italian Supreme Court’s decision no. 2286 dated 31 January 2025 addresses the definition of “fixed base” for the taxation of cross-border income earned by independent professionals for Tax Treaty purposes, as well as for the determining the deduction in Italy of taxes paid abroad. The Court stated that, in accordance with a reservation Italy has made in the past to Art. 7 of the OECD Model Convention, the concept of fixed base entails a lesser connection with the territory of the foreign State if compared to a permanent establishment.
In a nutshell, according to the Italian Supreme Court, the permanent establishment definition requires the presence of a fixed place of business “at the disposal of the foreign enterprise” which it is not required under the fixed base concept.
9. Recovery of State aid
The European Court of Justice, in its decision on the case C-588/23 of 16 January 2025, ruled that, in the event that a decision of the European Commission orders the recovery of State aid from an identified beneficiary, it is possible for the State to order the recovery of that aid from another undertaking on the ground that there is an economic connection between that undertaking and the beneficiary of the aid identified in that decision.
Since the main purpose of the repayment of unlawful State aid is to eliminate the distortion of competition caused by the competitive advantage, that aid must be recovered from the company which continues the economic activity of the undertaking which benefited from it: that is if it is established that that company retains the actual advantage of unlawful State aid.
10. The Italian Ministry of Finance issues a list of the QDMTTs
With a press release dated 23 January 2025, the Italian Ministry Finance published the lists of States and territories that have implemented the income inclusion rule (IIR) and the domestic top-up tax (DMTT) in their legislation – for Pillar Two purposes – and that have obtained the transitional “qualified” status following the revision process by the Inclusive Framework on BEPS.
These lists have been prepared by the OECD following specific peer reviews.
Italy domestic minimum tax (Art. 18 of Legislative Decree 209/2023) is a qualified domestic top-up tax, so that can be deducted from the total IIR due in relation to Italy.
In addition, the Ministry of Finance has also issued a list of the QDMTTs that qualifies as safe harbour QDMTTs, i.e. where a jurisdiction has enacted a safe harbour QDMTT, in principle, no other Pillar Two levies should be due.
11. Tax Treaty between Italy and Libya has been ratified
Law no. 2 of 16.1.2025 has been published in the Official Gazette, ratifying the tax treaty entered into between Italy and Libya.
In a nutshell, the treaty provides;
• for the mutual agreement procedure to solve dual residence conflicts with respect to persons other than individuals;
• a three-month threshold (instead of the twelve-month period provided for by the OECD Model Convention) for the project permanent establishment provision;
• a shared taxing right for interest where the source State may tax up to 5% of the gross amount of interest paid;
• the exclusive right to tax of the residence State with respect to capital gains derived from the sale of shares other than shares held in real estate companies.