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An analysis by ALMA LED, Taxand Italy
A recent decision by the Italian Supreme Court has held that French companies without a permanent establishment in Italy can benefit from the Italian participation exemption (PEX) regime for the capital gains realized upon the disposal of Italian companies, resulting in a significant tax reduction.
As per Italian domestic law, capital gains realized by non-Italian companies without a permanent establishment in Italy are subject to a tax rate of 26% in Italy. However, this provision has limited application, due to the majority of tax treaties concluded by Italy, which dictate that capital gains from the sale of Italian companies are taxable only in the shareholder’s non-Italian resident country. Nevertheless, under the France-Italy tax treaty, Italy is permitted to impose taxation on the capital gain if a French company sells shares representing a substantial participation in the capital of an Italian company (i.e., right to 25% or more of the profits).
The Italian Supreme Court’s decision no. 21261/2023 established that if the Italian PEX requirements are met, the Italian provision that subjects capital gains realized by companies established in other EU Member States to a higher rate of taxation (26%) than that imposed on capital gains realized by Italian companies (1.2%) is in breach of the EU right of establishment and free movement of capital.
Pending legislative change, this decision could result in potential tax savings for French companies (and, in principle, other non-EU countries).
Read the full analysis from Francesco Cardone, Partner at our Italian firm, ALMA LED, here.
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