International tax principles in conflict: the areas where the Italian Revenue Agency resists treaty and EU law
In professional practice, cases are increasingly arising in which the Italian Revenue Agency, despite a now well-established body of case law confirming the primacy of treaty or EU law over domestic legislation, continues to deny taxpayers’ claims at the administrative stage, forcing them to initiate litigation in order to obtain recognition of their rights. This phenomenon affects international taxation of both individuals and companies and can be analysed through three recent recurring issues before the Supreme Court, all characterised by the same pattern: a stable legal principle recognised by tax courts, coupled with administrative practice that fails to adapt.
1. Foreign dividend tax credits
We have already addressed this issue in a previous contribution, to which reference is made for a general overview. In summary, since the substitute tax on foreign dividends received by individuals is now mandatory rather than optional (Article 18 of the Italian Tax Code – TUIR), treaty provisions excluding a tax credit where income is subject in Italy to a withholding tax “at the request of the beneficiary” cannot apply, as this would result in double taxation, precisely the situation that tax treaties are intended to prevent.
The principle, established by the Supreme Court of Cassation in judgments No. 25698/2022 and No. 10204/2024, now appears consolidated also in lower tax court decisions, with the first confirmations coming from second-instance tax courts (including the Second Instance Tax Court of Tuscany, judgment No. 48/1/26, and the Second Instance Tax Court of Lombardy, judgment No. 1013/9/26). Despite this consolidation, the Revenue Agency continues to systematically reject related refund applications at the administrative stage, forcing taxpayers to bear the costs of litigation whose outcome is, to date, largely foreseeable.
2. Foreign tax credits: documentary requirements and failure to report foreign income
A second issue, distinct from the first but still relating to the foreign tax credit provided for by Article 165 of the TUIR, concerns the obstacles raised by the Revenue Agency in granting the credit in practice, rather than questioning its entitlement in principle.
From an evidentiary perspective, the tax authorities often require an official certificate issued by the foreign tax authority proving that the foreign tax paid is final, even where the taxpayer provides other reliable documentation, such as foreign withholding certificates, statements issued by foreign withholding agents, or a foreign tax return accompanied by proof of payment.
Tax case law has consistently rejected this approach, considering it to lack a genuine legal basis. The Second Instance Tax Court of Campania, judgment No. 1941/2022, and the Second Instance Tax Court of Lombardy, judgment No. 201/2025 (the latter included in the case-law database of the Office of the Tax Justice Case-Law Division), have held that certification issued by the foreign withholding agent is sufficient, and that a certificate issued exclusively by the foreign tax authority is not required.
A separate issue concerns recognition of the foreign tax credit where foreign income has not been reported in the tax return (Article 165(8) of the TUIR). On this point, the Supreme Court has adopted a less uniform approach.
One line of decisions, substantially consistent with Revenue Agency Circular No. 9/2015 (§ 3.4) and administrative practice, denies the foreign tax credit in such circumstances (Supreme Court judgment No. 23190/2023).
A second, more recent line of reasoning (Supreme Court judgment No. 24160/2024) holds instead that the treaty obligation to eliminate double taxation is unconditional and cannot be subordinated, under domestic law, to a reporting requirement that was never agreed upon between the contracting States. Consequently, the limitation provided for by Article 165(8) should apply only in relations with States with which Italy has no applicable tax treaty.
Despite this latter approach, the Revenue Agency continues to invoke failure to report foreign income even where an applicable tax treaty exists, leaving taxpayers to enforce in court a principle that the Supreme Court itself has already affirmed on several occasions.
3. The participation exemption regime for capital gains realised by foreign companies without an Italian permanent establishment, including pre-2024 disposals
This is the issue on which the Revenue Agency’s resistance is currently most pronounced and therefore deserves a more detailed examination.
The legal principle
In judgment No. 21261/2023, the Supreme Court held that the failure to apply the participation exemption (PEX) regime under Article 87 of the TUIR to capital gains realised by non-resident companies without an Italian permanent establishment was incompatible with the fundamental freedoms guaranteed by the TFEU – namely the freedom of establishment and the free movement of capital (Articles 49 and 63). This principle was subsequently confirmed, with substantially consistent reasoning, by judgments No. 23323/2023 and No. 27267/2023.
According to the Supreme Court, the PEX regime serves the same function as the partial exemption from taxation applicable to dividends under Article 89 of the TUIR: both regimes aim to mitigate economic double taxation on corporate profits that have already been taxed, or are intended to be taxed.
On this basis, the Supreme Court extended to capital gains the principles already established by the Court of Justice of the European Union in the landmark judgment of 19 November 2009, Case C-540/07, Commission v Italy, concerning dividends distributed to non-resident companies. The Supreme Court also held that the tax credit provided under the applicable treaty is not, in itself, sufficient to eliminate the discriminatory effect, unless it operates as a full credit and is not subject to the limitation represented by the amount of domestic tax.
Legislative intervention
Following this approach, Article 1(59) of Law No. 213/2023 (the 2024 Budget Law) introduced paragraph 2-bis into Article 68 of the TUIR. The new provision extends the 5% taxable regime (rather than full taxation through the ordinary substitute tax regime) to qualifying capital gains realised, from 1 January 2024 onwards, by companies and entities resident in the European Union or the European Economic Area, without an Italian permanent establishment, provided that they meet the substantive requirements set out in Article 87 of the TUIR for access to the PEX regime.
The issue of the previous regime
The most significant current litigation concerns disposals carried out before 2024, which are not expressly covered by the legislative amendment.
The Revenue Agency systematically argues that, in the absence of an explicit domestic legal provision for those years, the PEX regime cannot apply to non-resident entities. It therefore rejects the argument that the principles already established by the Italian Supreme Court since 2023, and even earlier by EU case law since 2009, were sufficient to require the disapplication of discriminatory domestic rules before the reform entered into force.
This position was most recently rejected by the Second Instance Tax Court of Abruzzo in judgment No. 433/2026, filed on 15 June 2026. The court upheld a French company’s right to a refund of the additional substitute tax paid on a capital gain realised in 2021.
The judges clarified that the 2024 amendment was not an innovative legislative measure but merely the codification of a principle already established under EU and national law (expressly referring to Supreme Court judgments No. 21261/2023 and No. 27267/2023). Therefore, even before the reform, domestic courts were required to disapply national legislation incompatible with EU law, in accordance with the principle that the interpretation of EU law provided by the Court of Justice has declaratory effect and applies retroactively from the date on which the interpreted provision entered into force.
The decision, which has been the subject of recent commentary in specialised tax publications, confirms that pre-reform disposals will likely remain a significant area of litigation for some time. The burden of proving the substantive requirements for the PEX regime (minimum holding period, non-preferential tax residence, commercial nature of the investee company’s activity, and classification of the participation as a financial fixed asset) remains with the taxpayer and must therefore be documented with particular care.
Conclusions
The three cases examined share a common pattern: a legal principle that is now well established in case law, but which the Revenue Agency continues to disregard at the administrative stage, leaving taxpayers with the burden of enforcing their rights through litigation.
This systematic divergence requires a careful approach from the earliest pre-litigation stage: submitting a well-supported and thoroughly documented refund claim, even in the almost certain prospect of administrative rejection, remains an essential prerequisite for accessing judicial proceedings in which the prevailing orientation of the courts is, as of today, firmly favourable to taxpayers.
