Lazard – assisted by Tremonti Romagnoli Piccardi e Associati, with a team composed of partner Cristiano Caumont Caimi and associate partner Anna Maria Gulino – prevailed in the Italian Supreme Court over the Italian Revenue Agency in a dispute concerning the refund of a tax credit on dividends received by its Italian subsidiary in the years 2002-2004.

The Supreme Court, referring to the position already expressed in previous judgments, acknowledged that the dividend exemption regime, implementing the ‘Parent-Subsidiary’ Directive, is not incompatible with the benefit of the refund of the indirect tax credit (already) granted by the Convention between Italy and the United Kingdom, in the sense that the taxpayer may opt for the latter even after having benefited from the former (subject to the application in Italy, on the aggregate of the dividend and the tax credit, of the 5% withholding tax provided for by the Directive).

In overturning the judgment of the court of appeal, the Court also acknowledged that the dividend withholding tax exemption regime does not necessarily eliminate the risk of economic double taxation or of violation of the principle of tax neutrality. On the other hand, the proper coordination of the two relief mechanisms (exemption and tax credit) allows for the elimination of the risk of double taxation, not only ‘direct’ but also ‘indirect’, i.e. resulting from the application of mechanisms which, although accompanied by deductions or exemptions, may cause the parent company to be treated less favourably in terms of taxation. For these purposes, it is necessary to verify that dividends are included in the pool of taxable income in the state of the parent company, regardless of whether in practice they are subject to a rate equal, lower or higher than that otherwise applicable in Italy.