DECISIONS 24160 – 24205 / 2024 OF THE ITALIAN SUPREME COURT

As reported by important scholars (Guglielmo Maisto), decisions of the Italian Supreme Court (24160 and no. 24205 of 9 September 2024), which rule on the interaction between domestic and tax treaty provisions on foreign tax credit, have to be considered as decision of utmost importance.

We have to point out that Supreme Court recognized that, if there is a double tax treaty in force between Italy and the State where the income is sourced, Italian residents are fully entitled to offset the foreign taxes paid in the other contracting State against Italian income tax, even if the income was not reported in a tax return filed in Italy.

Both decisions arose as the Italian Revenue Agency refused to grant a credit for the taxes paid abroad, and such a refusal was motivated by stating that unilateral foreign tax relief is not available if the taxpayer has either failed to file the income tax return in Italy or has not reported the foreign-sourced income in the income tax return filed.

The Supreme Court made clear the following:

• the Italian Revenue Agency may legitimately apply Article 165(8) ITC and, consequently, deny the foreign tax credit in the case of failure to file the tax return in Italy (or to report the foreign-sourced income in the return filed) only when there is no double tax treaty with the source State. Conversely, if a double tax treaty exists and has a foreign tax credit provision substantially in line with Article 23B of the OECD Model Convention, the credit must be granted without any special restriction.
• According to the Supreme Court, when a tax treaty exists, Italy assumes an unconditional obligation towards the other contracting State to relieve double taxation.

We have to remark that, always according to most important scholars (Maisto), both decisions are to be welcomed.

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