Beneficial owner clause in double taxation treaties

Francesco Marconi and Alessandro Poli were interviewed by We Wealth on the concept of beneficial owner in double tax treaties. Our professionals elaborate on the ruling of the Supreme Court, pointing out that normally royalties coming from a contracting country and received by residents of the other contracting state are taxable in the latter country (with the exclusion of taxability in the territory from which the royalties come). In practice, however, the royalties paid are also taxable in the Contracting State of residence of the payer.

The limitation of a country’s tax powers is based on the concept of the beneficial owner, i.e. on an expression of the general principle of the prevalence of substance over form, which is also aimed at combating so-called treaty shopping (a particular form of international tax avoidance).

The Court of Cassation – with Order 17746/2021, which recalls the precedent set out in Judgment no. 32840 of December 19, 2018 – openly stands up for the anti-abusive nature of the concept of beneficial owner, stating that only the person subject to the jurisdiction of the other Contracting State who has the real legal and economic availability of the proceeds received can be considered the beneficial owner.