RECENT TAX ALERT

ITALIAN JUDGMENT ON THE TREATY ENTITLEMENT OF AN ENGLISH TRUST - PROVINCIAL TAX COURT OF PESCARA, CHAMBER IV, 13 NOVEMBER 2012, NO. 210


06-05-2013
The Provincial Tax Court of Pescara ruled over a case involving a trust regulated by English law that was tax resident of the UK and cashed dividends from an Italian company in the years 1999 through 2002. The Court denied the entitlement of the trust to treaty benefits, particularly the refund of the imputation credit pursuant to Art. 10(4) of the UK-Italy income tax treaty. The refund of the imputation credit is not granted any more, following the shift of the Italian system from an imputation credit regime to an exemption regime; however, the annotated judgment highlights the risk that the Italian tax authorities (and courts) may deny the benefit of the reduced treaty withholding tax rates (applicable to, for instance, outbound dividends and interest) to non-resident trusts. In particular, the Italian tax authorities denied the refund of the imputation credit on the ground that trust is not a "person" for treaty purposes and, accordingly, is not entitled to treaty benefits. The Court shared the tax authorities’ view that the trust does not qualify as a person/company for treaty purposes (despite being subject to corporate income tax as a company) since it is not a legal entity.