The refund of Italian withholding tax on foreign dividends: the Supreme Court’s approach is consolidating in tax case law

The recognition of the foreign tax credit to offset the Italian substitute tax due on foreign dividends remains the subject of significant litigation. Since it is not possible to claim the credit directly in the tax return, taxpayers are required to submit refund applications and, in the event of the Italian Tax Authority’s implicit rejection through silence, challenge such refusals before the tax courts.

This procedural approach derives from the principles in favour of taxpayers established by the Italian Supreme Court (Corte di Cassazione) in judgments no. 25698/2022 and no. 10204/2024. These principles are increasingly supported and are now substantially consolidated in the case law of the lower tax courts.

The underlying principle can be summarised as follows: most Double Taxation Treaties concluded by Italy deny the foreign tax credit only where the income is subject in Italy to withholding tax or substitute tax “at the request of the beneficiary”. However, for individuals, the substitute tax regime on dividends pursuant to Article 18 of the Italian Income Tax Code (TUIR) is now mandatory, with no possibility of opting for ordinary taxation. Therefore, since such taxation is not imposed “at the request” of the taxpayer, the exclusion clause cannot apply. According to the Supreme Court, the foreign tax credit cannot be denied, as this would result in double taxation, which Double Taxation Treaties are specifically intended to prevent.

During 2025, tax court case law largely continued to uphold this principle (among others, Italian Tax Court of First Instance of Milan no. 27/2025, Bergamo nos. 21/2025 and 68/2025, Padua no. 253/2025, Second Instance Tax Court of Lazio no. 1599/2025, First Instance Tax Court of Rome no. 2841/2025, Bologna no. 316/2025, Ferrara no. 114/2025 and Turin no. 841/2025). However, a few isolated decisions took a different view. In particular, these rulings (First Instance Tax Court of Siena no. 176/2/25 and Padua no. 594/1/25) focused on the literal wording of Article 165 of the TUIR, according to which the tax credit applies to income included in the taxpayer’s overall taxable income. Nevertheless, this argument appears not to take into account the subordinate role of domestic legislation compared with international treaty provisions (a fundamental principle of the Italian tax system, as already confirmed by the Supreme Court in the aforementioned judgments).

These isolated decisions, which differ from the prevailing taxpayer-friendly approach, are counterbalanced by numerous further favourable rulings issued during the first half of 2026. Furthermore, as evidence of the consolidation of this interpretation, the first decisions from second-instance tax courts have been issued (see Second Instance Tax Court of Tuscany no. 48/1/26 and Second Instance Tax Court of Lombardy no. 1013/9/26), confirming the first-instance decisions in favour of taxpayers.

A particularly significant aspect is that tax judges now consider the principle established by the Supreme Court as consolidated, applying it by analogy to any Double Taxation Treaty that excludes the foreign tax credit by referring to taxation “at the request of the beneficiary”.

It should therefore be noted that, although broad in scope, this principle does not apply to treaties such as those concluded with Cyprus, Malta, Singapore, Saudi Arabia and the Principality of Monaco, which exclude the foreign tax credit “even at the request of the taxpayer”, thereby also covering cases where taxation is mandatory.

Tax & Legal Research Hub

Centro Studi e Pianificazione Fiscale

Responsabile

Dott. Valerio Locatelli

Coordinatore

Dott. Giancarlo Marengo