Tax Treaty Case Law around the Globe 2019

S. 2001. Introduction

In decision no. 25219 of 11 Oct. 2018, the Italian Supreme Court dealt with the application of treaty benefits, most notably the exemption in the state of source related to capital gains derived from the alienation of shares, in a case in which the alienator was not subject to tax in his state of residence due to its domestic participation exemption regime.

2. The facts of the case

The case deals with the alienation of shares held by a German resident entity (hereafter the “taxpayer”) in an Italian resident company. Upon such alienation the taxpayer realized a capital gain. Under Italian law, non-resident taxpayers are subject to substitute tax in Italy with regard to capital gains derived from the disposal of shares (with some exceptions).

The taxpayer claimed the application of the treaty exemption provided in article 13(4) of the Italy-Germany Income and Capital Tax Treaty (1989) (Italy-Germany Tax Treaty) according to which “[g]ains from the alienation of any property other than that referred to in paragraphs 1, 2 and 3 shall be taxable only in the Contracting State of which the alienator is a resident”.

The Italian tax authorities denied the application of the afore...