THE TAXATION RULES FOR DIVIDENDS AT INTERNATIONAL LEVEL
The treatment of dividends envisaged by the Parent / Subsidiary Directive - paid by companies that are tax resident in Italy to companies resident in different Member States of the European Union, is regulated in order to avoid double taxation.
There are two ways to apply this rule:
1) The tax refund scheme. The person who is resident in Italy, that distributes the dividends, apply withholding tax. The UE actor, which has collected the net dividend, will demand the withholding tax refund.
2) The exemption scheme. In this case, the person who is resident in Italy, at the request of the UE company that have the preconditions for the exemption, will not apply the withholding tax.
Conditions for the application of the Parent / Subsidiary Directive.
The withholding tax on paid dividends or the exemptions’ application is envisaged if the company:
• Is a limited company;
• is located in a Member State of the European Union;
• Has not benefited from special tax breaks;
• If the Parent company holds not less than 20% in the capital of the Subsidiary for an uninterrupted period of one year.
Obviously, in order to benefit from the exemption it will be necessary to present a suitable certificate attesting all the criteria required by the legislation.
For an international Group it is increasingly important to consider the origin of distributed dividends. If dividends are:
• Deliberated by Extra European companies, these will be subject to a 27% withholding tax;
• Deliberated by European companies, the deduction will be 1.2%.
With the repeal of the Black List and the evolution of international tax law, the whole system has become increasingly complicated.
Therefore, we recommend you to do not underestimate the topic.
If you need any further information about international taxation, do not hesitate to contact us.
Michela Pellizzer