The Italian Revenue Agency’s Ruling No. 144 of May 28 2025 addresses two questions at the intersection of cross-border dividend withholding and capital gains exemptions for non-resident investors.
The case concerned dividends potentially to be distributed by an Italian company to a Malta-resident trust governed by English law, administered by a Maltese trustee, and having elected to be taxed in Malta “as if it were a resident corporation”.
The ruling provides insight into how the Italian tax authorities interpret Article 27, paragraph 3-ter, of Presidential Decree No. 600/1973 (PD 600/1973) – a provision granting a reduced 1.20% withholding tax on outbound dividends to EU/European Economic Area (EEA) corporate taxpayers – and Article 5, paragraph 5, of Legislative Decree No. 461/1997 (LD 461/1997), which exempts certain capital gains realised by foreign investors on the disposal of Italian shares.
At stake was whether an irrevocable discretionary trust, lacking corporate form but having irrevocably opted into Maltese corporate income tax (CIT) under Section 27D(1) of Malta’s Income Tax Act, qualifies as a “company or entity subject to a corporate income tax” for the purposes of the Italian reduced-withholding regime.
The case
The settlor, an Italian-resident individual, created an irrevocable English-law trust to hold, among other assets, a non-qualifying participation in an Italian operating company.
The trustee is a licensed Maltese fiduciary supervised by the Malta Financial Services Authority.
Under Maltese law, trusts are ordinarily tax-transparent, with income allocated to beneficiaries.
However, Article 27D(1) of the Maltese Income Tax Act (Chapter 123) allows a resident trustee to elect irrevocably for the trust to be treated as a corporate taxpayer subject to Maltese CIT at the standard rate, with access to the participation exemption regime on dividends and capital gains similar to that provided by Italian tax legislation.
The trustee duly exercised that election. Consequently, all worldwide income of the trust became subject to Maltese CIT.
The trustee therefore asked the Italian tax authorities to confirm that:
Dividends from the Italian company would qualify for the 1.20% withholding tax under Article 27, paragraph 3-ter, of PD 600/1973, instead of the default 26% rate for non-resident portfolio shareholders; and
Any future capital gain from the sale of the Italian shares would benefit from the domestic exemption under Article 5, paragraph 5, of LD 461/1997.
Because the trust, by virtue of the Maltese election, is subject to Maltese CIT “as if it were a resident company” and Malta is an EU member state included in Italy’s white-list, the trustee contended that the trust satisfied all subjective conditions of Article 27, paragraph 3-ter, of PD 600/1973, notwithstanding the absence of a corporate legal form.
The trustee also argued that the objective of Article 27, paragraph 3-ter, of PD 600/1973 is to provide economic parity between Italian CIT-able companies (whose dividend distributions are 95% CIT exempt: 5% × 24% CIT rate = 1.2%) and comparable EU/EEA corporate taxpayers.
Regarding the capital gains exemption, the trustee submitted that being a CIT-paying Maltese-resident entity located in a white-list jurisdiction qualified it squarely under Article 5, paragraph 5, of LD 461/1997.
The Italian tax authorities’ position
The Italian tax authorities affirmed that the 1.20% regime is reserved for “companies and entities subject to a corporate income tax” in an EU/EEA white-list state.
Crucially, the Italian tax authorities distinguished between the domestic definition of an “entity subject to corporate income tax” (ente soggetto a imposta sulle società) and the EU Parent-Subsidiary Directive, noting that the latter – implemented in Italy by Article 27-bis of PD 600/1973 – applies only to entities having one of the corporate forms listed in Annex I, Part A of the directive.
On the second question, the Italian tax authorities agreed with the applicant’s view regarding the capital gains exemption.
Article 5, paragraph 5, of LD 461/1997 (by reference to Article 6, paragraph 1, of Legislative Decree 239/1996) exempts capital gains realised by any non-resident person or entity resident in a white-list jurisdiction, provided no Italian permanent establishment is involved.
Unlike Article 27, paragraph 3-ter, of PD 600/1973, the exemption does not hinge on corporate form.
Since Malta is a white-list jurisdiction and the trust is recognised as a non-resident taxpayer there, the Italian tax authorities concluded that capital gains on the disposal of the Italian shares will be exempt from Italian tax.
Analysis
The Italian tax authorities’ interpretation of Article 27, paragraph 3-ter, of PD 600/1973 confirms that form matters.
Unlike Article 27-bis, which implements the EU Parent-Subsidiary Directive and expressly limits its scope to companies having one of the corporate forms listed in Annex I, Part A of the Directive, Article 27, paragraph 3-ter, of PD 600/1973 imposes no such requirement of legal form.
By disregarding the trust’s actual tax status and instead insisting on a formal corporate shell, the ruling perpetuates a formalistic tension.
This approach undermines the legislative purpose of Article 27, paragraph 3-ter, of PD 600/1973; namely, to achieve substantive parity of the tax burden between Italian CIT-able companies and their EU/EEA counterparts.
From a comparative law standpoint, different EU jurisdictions prioritise the taxpayer’s liability to CIT over its legal form when granting reduced withholding rates.
Italy’s position therefore appears out of step with prevailing international practice.
On the other hand, in the same ruling the Italian tax authorities allowed the capital gains exemption under Article 5, paragraph 5, of LD 461/1997, a stance consistent with both the statutory text and Italy’s policy of attracting foreign portfolio investment without imposing an Italian taxable presence.
A coherent policy would require Italy to apply the same substance-based reasoning to outbound dividends, ensuring that any entity – regardless of its juridical form – that is resident in an EU/EEA white-list jurisdiction and effectively subject to CIT there receives equal treatment.
