On December 24, 2019, the Conversion Law (L.157/2019) of Decree n.124/2019 containing urgent provisions in tax matters and for unforeseeable needs was published in the Official Journal.

 In the matter of dividends, it is useful to examine Art. 32-quater (Changes to the tax time).

The new regime (in the absence of a transitional rule) applies to dividends paid from the day following the entry into force of the Conversion Law.

Art. 32-quater, paragraph 1, provides that dividends paid to the simple company, in any form and under any name by companies established in Italy (joint stock companies and  company limited by shares, limited liability companies, cooperatives, mutual insurance companies) or by public or private entities having as their exclusive or principal object the exercise of commercial activities and established in the territory of the State, have to be received by their members with the consequent application of the corresponding tax regime.

 In particular:

  • On the part of the dividend attributable to the shareholders, natural persons resident in Italy who are not entrepreneurs, there is a tax deduction of 26%, pursuant to art. 27, paragraph 1 of Presidential Decree 600/1973.
  • The part of the dividend attributable to company limited by shares or general partnerships established in Italy is not subject to withholding tax and 41.86% of the dividends received is excluded from the formation of total income.
  • 95 % of dividends paid to the simple company for the part of the dividend attributable to companies with share capital or commercial entities established in Italy are excluded from the formation of total income.
  • Regarding the other categories of members of the simple company (for example, non-commercial entities or non-resident entities), the respective share of the dividend will contribute to the total income of 100 %.

The relevant time for taxation is when the dividend is paid.

It is therefore necessary that the issuing company, at a time prior to the issue of dividends, becomes aware of the composition of the simple company (legal subjectivity of the shareholders and their share in the profits of the simple company) to identify the correct tax treatment.

In the case of trust companies, if the shares or the ownership shares of the simple company proprietor are administered by an Italian trustee, or if  the trust company interposes between the shareholder of the simple company and the company itself, the transmission of information relating to the legal subjectivity of the members of the simple company must be conveyed through the trustee (it does not act as a substitute or tax manager).

From a first examination of the new legislation the system outlined by art. 34-quater of L.157/2019 discriminates foreign investments and non-resident members of ordinary Italian companies.

This will be contested because, according to the case law of the Court of Justice of the European Union (judgment C685/16) differentiated tax treatment between dividends distributed by a resident company and dividends distributed by a company established abroad, including in a non-EU State, is one of the measures considered to be restrictions on capital movements; and as such, prohibited by Article 63, paragraph 1, TFEU.

Contrary to what is provided for in the TFEU, L157/2019 provides that, in the absence of an express statutory provision, dividends from a foreign source or to shareholders (of simple companies) not resident in Italy, unlike those provided for residents, contribute to the formation of the taxable income of the members for their entire amount.

It only remains to follow the development of the new legislation in order to modulate the strategies.


Milano, 13 July 2020

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