An Italian appeals court has ruled that a US corporation can claim a reduced 1.2% withholding tax rate on dividends from its Italian subsidiary, ordering a refund of the 3.8% excess tax paid. The decision, based on EU free movement of capital principles, could open refund opportunities for other non-EU companies that have paid higher dividend withholding taxes in Italy.
The Italian Tax Court of Appeals of Abruzzo delivered a decision on 17 February 2026 (Decision 93/2026), allowing a US corporation to benefit from a reduced 1.2% withholding tax rate on dividends received from its Italian subsidiary.
Case background
The dispute centred on a US company holding a 35% stake in an Italian firm. When the Italian subsidiary distributed dividends in 2018, it applied a 5% withholding tax under the Italy-US tax treaty, which requires a minimum 25% ownership threshold.
The American company subsequently sought a refund for the 3.8% difference, claiming it should receive the same 1.2% preferential rate available to EU and EEA shareholders who don’t qualify for complete exemption under the EU Parent-Subsidiary Directive.
Italian tax authorities rejected the claim, arguing the reduced rate applied only to European entities. The US company appealed, contending that restricting the benefit based on residence outside the EU/EEA violated the free movement of capital principles.
Court’s reasoning
The appeals court upheld the lower court’s ruling in favour of the US company. Judges determined that denying the 1.2% rate to non-EU corporations in comparable situations constitutes an unjustified restriction under Article 63 of the Treaty on the Functioning of the European Union. The court ordered Italian tax authorities to refund the excess withholding tax.
Implications
This decision opens potential refund opportunities for non-EU corporations that paid higher withholding rates on Italian dividends. The ruling applies EU free movement of capital principles to third-country shareholders, establishing that discriminatory tax treatment cannot be justified solely by residence outside the European Union. Importantly, the claim extends to holdings that don’t meet EU Parent-Subsidiary Directive requirements.
