ITALY Trends and Developments Contributed by: Giuliano Foglia, Foglia & Partners
Tax Assessment Trends The Italian Tax Authorities have always been very active in scrutinising foreign investment – especially the investments made by entities and corporations. One of the areas of greatest attention in any foreign investment transaction is the tax treatment of income flows (whether dividends, interest or royalties). In this respect, Italian Tax Authorities have always adopted a very strict approach, challenging the application of the benefits of both EU Directives and double tax conventions, with specific regard to the existence of beneficial ownership and/or substance in the foreign entity receiving the income. Italian Tax Authorities may challenge the tax regime applied by the taxpayer on outbound income streams under the Italian GAAR or through the ordinary tax assessment procedure. Very recently, new legislation and case law have strengthened the taxpayer’s position in similar audits. In particular: • an exemption for dividends paid to and capital gains realised by EU/EEA investment funds: (a) which are compliant with Directive 2009/65/ EC on the coordination of laws, regulations and administrative provisions relating to undertak - ings for collective investment in transferable securities (“UCITS Directive”); or (b) whose fund manager is subject to regulatory
supervision in the country of establishment ac - cording to Directive 2011/61/EU on alternative investment fund managers (“AIFM Directive”); • the Italian participation exemption regime (95% exemption) has been extended, under the same conditions, to EU/EEA resident entities, mitigating the exposure of the entities resident in States with - out a bilateral convention ensuring the exclusive resident State taxation; • the Italian Supreme Court has recently clarified that the existence of the subjective requirements (ie, being an EU/EEA bank and insurance com - pany or a white-list country supervised institutional investor) for the application of the withholding tax exemption on interest for medium-long term loans granted to Italian enterprises should be assessed in the hands of the actual beneficial owner of the income to be identified with a look though approach (see Decision No 4427/2025), making possible to apply the exemption in case of loans obtained abroad and channelled to Italy through other non-resident group companies. Notwithstanding the above, the claims of the Italian Tax Authorities are frequent and continue to represent an issue for multinational groups investing in Italy. Further sensitive areas for multinational groups hav - ing an interest in Italy are transfer pricing and hidden permanent establishment issues.
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