ITALY Law and Practice Contributed by: Giuliano Foglia, Foglia & Partners
1. Sources and Principles 1.1 Domestic Sources of International Tax Law The main sources of international tax law are bilateral and multilateral tax treaties. Italy has an extensive network of (more than 100) bilateral tax conventions, primarily aimed at prevent - ing and/or mitigating double taxation on income and capital (“DTCs”). The Italian treaty network also includes specific agree - ments with a limited territorial scope, such as those regulating the taxation of cross-border workers (ie, the agreement concluded with Switzerland; see also the specific provisions included in Article 15 of the DTCs with Austria, France and San Marino). A number of specific bilateral treaties address the avoidance of double taxation with respect to inherit - ance and gift taxes (ie, the agreement on inheritance and gift taxes with France and those on inheritance tax with Denmark, Greece, Israel, Sweden, the UK and the US). Tax Information Exchange Agreements (“TIEA”) have been concluded with specific low tax jurisdictions (Andorra, Bermuda, Cayman Islands, Cook Islands, Guernsey, Gibraltar, Isle of Man, Jersey, Liechtenstein, Monaco and Turkmenistan) to ensure a minimum standard of effective exchange of information on a bilateral basis. In addition to bilateral agreements, Italy is a party to multilateral agreements, usually concluded to promote and foster administrative cooperation and assistance among States (see 8.1 Availability and Legal Basis ). In addition to the bilateral and multilateral instruments, Italy is bound, as a Member State of the European Union (“EU”), by EU Treaties and legislation, as inter - preted by the European Court of Justice, that have primacy over domestic law, with the consequence that Italian public administration and Italian courts have the obligation not to apply the domestic legislation conflicting with the EU one.
Among EU legislation, Directives play an important role, harmonising the domestic legislation of Mem - ber States in specific areas of law. A wide range of Directives has been used in direct tax matters (eg, Merger Directive, Parent-Subsidiary Directive, Inter - est and Royalties Directive, ATAD, Pillar Two Directive) and in the field of administrative cooperation between national tax authorities (ie, the eight DACs). An important role, especially as a standard for interpre - tation, is also played by soft law instruments, such as (at EU level) recommendations and opinions of the EU Commission and (at an international level) the OECD Commentaries on the OECD Model, the OECD Trans - fer Pricing Guidelines and the BEPS Action Reports. 1.2 Hierarchy of Sources In the Italian legal system, the rules set out in interna - tional tax treaties and in EU law are only subordinate to the inviolable principles and fundamental rights of the Italian Constitution and prevail over any conflict - ing internal statutory and regulatory rules. This follows from the principles established in Articles 10 and 117 (1) of the Italian Constitution, which provide, respec - tively, that Italy aligns with the generally accepted rules of international law and that the legislative power of the Italian State and the Italian Regions shall be exercised in compliance with the constraints deriving from EU legislation and international obligations. The primacy of the rules set out in DTCs over domes - tic tax provisions is also recognised in the domes - tic legislation. For example, Article 75 of Presidential Decree No 600/1973 and Article 41 of Presidential Decree No 601/1973 recognise the applicability of DTC provisions over Italian domestic rules on income taxes and tax allowances. Article 169 of Presidential Decree No 917/1986 (the “Income Tax Code” or “ITC”) also confirms the general principle of the prevalence of DTCs over domestic tax law; however, it provides that domestic tax provisions continue to apply, if they are more favourable to the taxpayer, even by way of derogation from DTCs. As established by the consistent case-law of the ECJ (since the landmark decisions in Costa v Enel, van Gend en Loos and Simmenthal), the primacy of EU law over domestic law is ensured through the mecha -
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