In Ruling No. 144 of May 28, 2025, the Italian Revenue Agency examined the taxation of dividends and capital gains realized by a non-resident, fiscally opaque trust holding non-qualified shares in an Italian private limited company (SRL). The ruling confirmed that a foreign opaque trust is recognized as a separate taxable person under Italian law, but denied the reduced 1.2% withholding rate on dividends under Article 27(3-bis) of the TUIR, while confirming the capital gains exemption under Article 5 of Legislative Decree No. 461/1997. 

Relevant Provisions

Article 27(3-bis) of the Italian Unified Statute on Direct Taxes (“TUIR”) provides for a reduced 1.2% withholding tax rate on dividends paid to qualifying companies resident in the EU/EEA, provided they are subject to corporate income tax and meet specific legal form requirements listed in the EU Parent-Subsidiary Directive. The reduced rate is aimed at equalizing the tax treatment of inbound and outbound dividends when they are paid to similarly situated taxpayers. Domestic dividends paid to an Italian company are taxed at an effective rate of 1.2% once the participation exemption that exempts 95% of the dividend is taken into account.

Dividend Article 5(5) of Legislative Decree No. 461/1997 exempts from Italian taxation the capital gains realized by non-resident entities on the sale of non-qualified shareholdings in unlisted Italian companies, provided that the recipient is established in a jurisdiction that allows the exchange of information for tax purposes. Entities established in a country that has a bilateral income tax treaty with Italy generally qualify.

Facts

The taxpayer was a foreign trust governed by UK law and administered in Malta. For Maltese tax purposes, the trust elected to be treated as a corporate entity subject to Maltese corporate income tax. However, under Malta’s participation exemption regime, the trust was exempt from taxation on dividends and capital gains. The trust was classified as fiscally opaque under Italian law because the settlor had no direct claim to the income of the trust, and distributions of income and principal to the beneficiaries, which included the settlor’s spouse and descendants, were entirely at the trustee’s discretion. 

Issues

The taxpayer asked the Revenue Agency to confirm:
1. Whether the reduced 1.2% withholding tax rate under Article 27(3-bis) TUIR applied to the dividends, given the trust’s status as a taxable entity in Malta, despite benefiting from the participation exemption,
2. Whether the capital gain from the sale of the non-qualified SRL shares was exempt from Italian taxation under Article 5(5) of Legislative Decree No. 461/1997.

Agency’s Conclusions

The Agency confirmed that the trust is recognized as a separate non-resident taxable person for Italian tax purposes and, as such, can access the exemptions available to non-resident taxpayers.  

On the first issue, the Agency denied the 1.2% withholding tax rate because Article 27(3-bis) limits the benefit to entities organized in one of the legal forms listed in the EU Parent-Subsidiary Directive – forms that do not include trusts.  

On the second issue, the Agency confirmed that the gain from the sale of the non-qualified shares was exempt from Italian taxation under Article 5(5) of Legislative Decree No. 461/1997.

Open and Unaddressed Issues

The taxpayer did not raise – and the Agency did not address – the possible application of the Italy–Malta tax treaty, which could potentially reduce or eliminate Italian withholding tax on dividends. The Italian statutory withholding tax rate on outbound dividends is 27%.

Likewise, there was no discussion in the ruling of whether the general principles of EU law, particularly the free movement of capital under Article 63 of the Treaty on the Functioning of the European Union (TFEU), might require Italy to extend the 1.2% rate or another reduced rate to outbound dividends paid to non-corporate but comparable entities resident in the EU/EEA.

These arguments remain relevant for future planning and litigation.

The ruling nonetheless confirms an important point: a foreign fiscally opaque trust is recognized as a separate non-resident taxpayer for Italian purposes, even if exempt on certain income items under its home country’s tax rules, and can therefore claim the benefit from certain exemptions or reduce taxation available to non-resident taxpayers under Italian law.

Given the open questions, cross-border structures involving trusts should review dividend and capital gain flows in light of both Italian domestic rules and potential treaty or EU-law arguments.