The Court of Cassation, Tax Section, with judgment 25698/2022, affirmed the principle of law by which resident natural persons are also credited for taxes paid abroad on dividends distributed by non-resident companies and relating to unqualified holdings, even though they are subject to withholding tax or substitute tax.
The credit for taxes paid abroad is the tool used by the Italian tax system to eliminate the so-called international legal double taxation that occurs when the same income component is subject to taxation for the same taxpayer in several States. Foreign source dividends received by resident natural persons and relating to not-qualifying shareholdings (and, from 2018, also those relating to qualifying shareholdings) are subject to withholding tax at the rate of 26% to be applied by the intermediary involved in the collection. In the absence of the intermediary, dividends are taxed at the same rate in the tax return.
The national legislation (art. 165 Tuir) provides, however, that the credit for taxes paid abroad on foreign sources of income can be reduced by national taxes provided that these incomes are included in the total income of the taxpayer (This is not the case if they are subject to withholding tax or substitute tax, such as dividends).
With this judgment, the Court of Cassation clearly affirmed the right to a tax credit for resident natural persons on foreign dividends, except where the Treaty against double taxation concluded with the foreign State, expressly provides that the credit is not recognized even where the income component is subject to compulsory withholding tax.