With Revenue Agency Resolution 46/E of 31 July, the Italian Tax Authorities confirmed full application of the withholding tax exemption under Article 15 of the European Union (EU)-Switzerland Agreement in relation to dividends paid by an Italian subsidiary to its Swiss parent company.
The rule in Detail - According to Article 9 of the agreement, the exemption is subject to the following conditions:
- That either the parent company directly holds at least 25 % of the capital of the subsidiary for a minimum of two years, and one of the two companies is resident for tax purposes in the EU and the other in Switzerland;
- Either neither company is resident for tax purposes in a third state by convention;
- Either both companies are subject to direct tax on profits without benefiting from exemptions and adopt the form of a corporation.
Particularly, based on the latter condition, due to the special holding company regime provided for in Switzerland by Article 28 of the Federal Act on the Harmonisation of Direct Taxes of Cantons and Municipalities, the Agency had already ruled out that the exemption from withholding tax could operate for dividends distributed to Swiss companies qualifying as holding companies (Resolution 93/E of 2007).
Subsequently, the exemption was granted on the condition that the Swiss parent company renounced the special regime (Resolution 57/E of 2019). Switzerland then repealed the special regime as of 1 January 2020. The result is that currently, dividends in Switzerland are uniformly subject to federal, cantonal and municipal taxes by benefiting from a reduction (provided for in Article 69 of the Direct Federal Tax Act) which - even if calculated by a special method - produces the effects of the participation exemption in force in Italy (Resolution 288/E of 2007). Revenue Agency Reply 135 of 2021 therefore clarified that there are no longer any obstacles to the application of the exemption under Article 9 of the EU/Switzerland Convention.
Conclusion - Reaching the end of this interpretative path, Resolution 46/E of 31 July has the merit of confirming in a generalised manner that Resolution 93/E of 2007 has been superseded. The Agency also takes its cue from the European Court of Justice ruling C-448/2015, according to which denying the exemption in the case of only partial taxation of the profit in the State of the parent company would end up violating the dictate and objective of tax neutrality pursued by European law.