Dividends from non-resident companies located in low-tax jurisdictions

The Tax Authority with ruling no. 587 of 16th December 2020, provided some clarifications on the issue of dividends from the blacklisted company.

The application filed to the Tax Office concerning income realised in the fiscal year 2017 and distributed in the fiscal year 2019 to the Italian parent company Alfa by the subsidiary Beta resident in tax haven jurisdictions.

In principle, dividends received from blacklisted companies (under the CFC regime) will be fully taxed.

For dividend taxation purposes, a foreign entity will not be considered a blacklisted company if the resident taxpayer can demonstrate that it is not a fake structure aimed at obtaining an unjustified tax benefit (the so-called “second safe-harbour CFC rule”) pursuant to art. 47-bis, paragraph 2, let. b), of TUIR.

Further, the foreign source dividends received by Italian companies will be taxed as per art. 167 of TUIR as follows:

  • if the first safe-harbour CFC rule applies, 50% of the amount of dividends will be excluded from the Italian taxable base.
  • if the foreign source profits were already attributed to the Italian parent company under the CFC regime, dividends will be not included in the Italian company’s taxable base.

The Budget Law 2018 established that dividends accrued in previous fiscal years, when blacklisted companies did not qualify as such (according to the different CFC criteria), are subject to the ordinary tax regime.

The Tax Office, therefore, considers that the taxpayer must verify if in the period of ” taxation” of the profits, i.e. 2017, the company Beta was qualified as a resident in a State with ordinary taxation according to the rules in force in that tax year.

The dividends received in 2019 would not be considered as paid by entities that are resident in tax haven jurisdictions if dividend distribution is presumed to be formed by profits realised when a foreign company does not qualify as a low-tax jurisdiction, according to the rules in force in the same period of “formation” of the profit.

Cecilia Breviglieri