Tax Treaty Case Law around the Globe 2024

28.1. Introduction

The Italian Supreme Court (Corte di Cassazione) handed down an unprecedented decision concerning the Italian Regional Tax on Productive Activities (IRAP) and the foreign tax credit under article 24 of the Italy-France Income and Capital Tax Treaty (1989).

The Italian regional trade tax known as IRAP is not considered a tax on income under domestic law, but it is a covered tax under Italy’s tax treaties. Even if it is a covered tax, Italy traditionally does not allow its residents to credit the other contracting state’s covered taxes against the IRAP. The reason for the denial is that IRAP legislation has no foreign tax credit rules.

In this decision, the Supreme Court clearly held that because IRAP is a covered tax, the treaty obliges Italy to recognize a treaty credit also against IRAP, irrespective of the fact that domestic legislation does not grant the foreign tax credit in relation to this tax. This decision may affect the interpretation of most Italian tax treaties currently in force.

28.2. Facts of the case

28.2.1. A brief description of IRAP

IRAP stands for “Imposta regionale sulle attività produttive”, which can be translated into regional tax on productive ac...