International Tax Focus - 9/2025

International Tax News Italy - Monthly update

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The Monthly Update newsletter summarizes the most relevant cross-border tax novelties of August 2025 from a domestic, European and international perspective.

Among the main topics:

- withholding tax on interest accrued by foreign funds;

- dividends paid to a company resident in the Russian Federation;

- tax neutrality of intra-Community share transfers.

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1.Entities that place securities in the market do not qualify as withholding agents in Italy

The Italian Supreme Court, with the decision no. 22419 of 4 August 2025, stated that, with respect to withholding taxes on interest and capital income referred to in Art. 26(3) of the Presidential Decree 600/73, the notion of “paying bank” in charge (in the case at stake) of placing shares of Luxembourg funds on the market does not necessarily coincide with that of resident entity that “intervenes” in the collection of interest.

According to the Italian Supreme Court, for the purposes of applying the withholding tax pursuant to Art. 26(3) of the Presidential Decree 600/73, a person needs actually to intervene in the interest collection and such requirement is not met by mere marketing activities.

2.Partners of tax transparent trusts are treaty entitled if taxed on the income

According to the Italian Tax Authorities’ answer to ruling no. 203 of 6 August 2025:

·       dividends received by a Japanese company through one or more transparent trusts may be eligible for tax treaty benefits, insofar as the dividends are attributed, for tax purposes, to the partners of the transparent entity in the partners’ country of residence; the trusts (which are not liable to tax), on the other hand, are not treaty entitled;

·       a cumulative certificate of residence issued by the foreign State is allowed, provided that the list of tax numbers of each beneficiary and the specification of the reference year of residence are attached to it (in this case at stake, all beneficiaries were Japanese residents);

·       the request for reimbursement of the higher tax paid in Italy compared to the rate provided for by the relevant tax treaty cannot, however, be cumulative, but must on the contrary be submitted by each of the partners concerned.

3.Italy-Russia tax treaty still applies despite the suspension decree issued in Russia

The Italian Tax Authorities, with their ruling no. 206 of 7 August 2025, clarified that dividends paid by Italian companies to companies that are tax resident in the Russian Federation must be subject to the withholding tax provided for by the tax treaty.

The Italy-Russia treaty, in fact, must be applied despite the fact that the President of the Russian Federation has issued a decree of suspension. Indeed, pursuant to international tax law, the procedure to suspend the tax treaty has not been correctly carried out.

4.Even individuals resident abroad may benefit from the “risparmio amministrato”

Ruling no. 208 of 14 clarifies that an individual transferring his/her tax residence outside of Italy may still benefit from the Italian “regime del risparmio amministrato”, pursuant to which an Italian appointed intermediary is in charge of withholding the taxation on interest and capital gain on the assets that the individual puts under the account.

5.Italian tax residence of foreign entities can only be claimed under the abuse of law doctrine

With its decision no. 23842 of 25 August 2025, the Italian Supreme Court has confirmed that the Italian tax residence of foreign based entities cannot be challenged where the foreign entity does not qualify as wholly artificial arrangement and such entity carries out a real economic activity abroad.

In the case brought to the attention of the Italian Supreme Court, the foreign company had offices in Madeira, where such company as registered, as well as non-Italian tugboats and employees; the meetings of the board of directors and the shareholders’ meetings had always been held abroad. In addition, emphasis is placed on the fact that the activity, being geographically carried out in places (the Atlantic Ocean) adjacent to Madeira, was presumed to have actually been carried out on site.

Therefore, the Italian Supreme Court rejected the Italian Tax Authorities challenge as they claimed that such company was to be considered as tax resident in Italy.

6.Simultaneous contributions of non-controlling interests are not tax neutral

In its ruling no. 217 of 19 August 2025, the Italian Tax Authorities ruled on the application of Art. 178 and 179 of the TUIR to a complex group reorganization operation, which provides for three separate contributions of participations.

In the case analyzed by the Italian Tax Authorities, two contributions are simultaneous, as in particular:

·       a French company (Alfa) transfers to another French company (Alfa 2) its interest (equal to 53.96% of the capital) in an Italian company (Alfa Italia);

·       another Italian company (Beta, another transferor) transfers its stake in Alfa Italia (equal to 26.05% of its capital) to Alfa 2.

Once the simultaneous contributions have been completed, Alfa Italia would be wholly owned by Alfa 2.

According to the Italian Tax Authorities, Beta holds a minority stake in Alfa Italia, which, considered individually, would not lead Beta to integrate a controlling stake in Alfa 2, given the shareholding in Alfa Italia already held by the French company (19.99%). Furthermore, the contribution by Beta does not derive from the need to increase the percentage of control in Alfa Italia held by Alfa 2 by virtue of a legal or statutory obligation.

Therefore, the Italian Tax Authorities denied the application of the tax neutrality regime provided for by Arts. 178 and 179 of the TUIR to the simultaneous contribution.

7.The inbound workers regime may be applied through a refund request

With its decision no. 23526 of 19 August 2025 the Italian Supreme Court allowed the refund of the higher taxes paid by an individual who met the requirements to access the in-bound workers regime provide for by Art. 16 of Legislative Decree 147/2015, even in the absence of a specific request to the employer (in its quality of withholding agent) and absent the indication in the tax return of the reduced taxable amount.

The Court confirms that, in the presence of the legal requirements, the worker can benefit from the regime either:

·       by submitting a specific request to the employer in order to obtain the application of the reduced withholding on his/her salary;

·       directly in the tax return; or

·       by means of a refund application pursuant to Art. 38 of Presidential Decree 602/73 within the relevant statute of limitation.

8.Long-term incentive plans are taxable in Italy when the residents cash them out

The Italian Tax Authorities, in response to ruling no. 199 of 4 August 2025, examines the tax treatment of long-term incentive plans, paid to individuals tax resident in Italy but relating to work activities carried out abroad.

According to the Administration, first of all, the bonuses paid to employees according to long-term incentive plans qualify as employment income (see Art. 51 of the TUIR) and, as such, are subject to taxation on a cash-basis.

For tax treaty purposes, Italy, as the State of residence, may tax the remuneration referred to the bonuses received during the periods of residence in Italy of the relevant employee; however, with respect to income derived from work activities carried out abroad, the Italian tax resident may benefit from the tax credit regime provided for by Art. 165 of the TUIR.

9.The VAT plafond cannot be transferred if not mentioned in the relevant contracts

According to the Italian Tax Authority (ruling no. 200 of 4 August 2025), the VAT plafond cannot be transferred to the transferee, if the transfer of such plafond is not mentioned in the contract for the sale of the going concern.

Furthermore, if the transferee is resident abroad, he must be identified for VAT purposes in Italy directly or through a tax representative.

The fact examined in the above-mentioned ruling concerns a corporate reorganization involving three persons: an Italian company that transfers a going concern to a legal entity set-up under English law which, in its turn, partially transfers it to a company established in Italy. Since the conditions for the transfer of the VAT plafond accrued by the Italian company to the English company were not met, the latter, in turn, cannot transfer this asset to the newly established Italian company.

10.TP adjustements are relevant for VAT purposes

According to the Italian Tax Authorities (ruling no. 214 of 19 August 2025), transfer pricing adjustments (due to the application of the TNMM method) are relevant for VAT purposes, as the parties in the contract agreed on a provisional price to be followed by periodic adjustments.

Such adjustments will trigger the issuance of VAT variation notes.

11.Transactions between PEs and head offices are VAT relevant if one joins a VAT group

With its ruling no. 216 of 19 August 2025, the Italian Tax Authorities clarified that when the head office belongs to a VAT Group in an EU Member State then the transactions occurring between such company and its permanent establishment are considered to be relevant for VAT purposes.

In the fact pattern analyzed by the Italian Tax Authorities, since the head office joined a VAT Group in an EU Member State, its two permanent establishments must be considered as separate taxable persons for VAT purposes: as a consequence, the supplies of services provided by the English branch to the Italian branch (IT and back office services) will be relevant in Italy for VAT purposes pursuant to Art. 7-ter(1) a) of Presidential Decree 633/72.

12.Excess VAT charged on non-VAT persons should not be paid to the treasury

The European Court of Justice, in its decision relating to the case C-794/23 dated of 1 August 2025, ruled that the VAT in excess charged to a non-VAT person is not to be collected and paid by the supplier, since there is no risk of loss of tax revenue.