Brussels, 9 January 2007
Direct Taxation: Commission requests Italy to end the application of a withholding tax on dividends paid to parent companies in the Netherlands
The European Commission has sent Italy a formal request to end the application of a withholding tax on the distribution of dividends to parent companies established in the Netherlands. The request is in the form of a ‘reasoned opinion’, the second step of the procedure under Article 226 of the EC Treaty, Italy having failed to react to the letter of formal notice sent by the Commission on the matter. If Italy does not reply satisfactorily to the reasoned opinion within two months the Commission may refer the matter to the European Court of Justice.
Since 2003 Italy has switched its tax credit system for dividend distributions into an exemption regime.
Referring to the jurisprudence of the Italian Supreme Court's (Corte di Cassazione) delivered under the previous credit system regime, the Italian tax administration refuses to reimburse to Dutch shareholders the 5% withholding tax provided for the Italian-Dutch agreements' provisions on double taxation.
The Commission considers that such withholding tax is contrary to the parent–subsidiary directive (90/435/EEC) which, under certain conditions, exempts from any withholding tax distributions between companies established in different EU member States.
The Commission considers that the Italian tax authorities give a too extensive interpretation to the parent-subsidiary directive, by imposing a charge of 5 % on dividends paid to a Dutch parent company.
Commission case's reference number is 2005/4047.
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