Tax Treaty Case Law around the Globe 2025

1. Introduction

The Italian Supreme Court (Corte di Cassazione) handed down a very interesting - although not conclusive - decision (decision no. 2465 of 25 January 2024, Terex Italia case) concerning whether the payments made by an Italian resident company to its US resident parent company for acquiring the usufruct of a trademark owned by the US parent company could qualify as royalties under Article 12(3) (Royalties) of the Italy-US Income Tax Treaty (1984). The usufruct is a right in rem that derives from Roman law and is now regulated by the Italian Civil Code.

The Italian resident company argued that the income earned by its US parent company fell under Article 7 (Business Profits) of the treaty whereas the Italian tax authorities believed that the payment qualified as royalty that would have allowed Italy to levy taxation at source. The second-tier tax court upheld the tax authorities’ position, but the Supreme Court quashed the decision. It stated that the second-tier court had not performed a thorough analysis of all of the terms and conditions of the usufruct agreement, which was instead necessary to establish whether the parties intended to achieve the economic and functio...