Italian Dividends to Japanese Investors: Tax Clarifications Issued
Rome,Italy – Italy’s Revenue Agency has released crucial clarifications regarding the taxation of dividends paid to Japanese residents via transparent trusts,aiming to streamline financial transactions between the two nations. The guidance, detailed in response to a query from Alfa Company, a Japanese Trust Bank, on August 6, 2025 (Ade – Reply n. 203), addresses the application of the Italy-Japan double taxation treaty.
The clarification stems from a case involving pension plans managed by Beta Company, a Japanese corporate entity. Alfa Company, acting as trustee, receives dividends from Italian companies through Trust Gamma, a Japanese trust recognized as a taxable entity within Japan. Beta Company functions as both the settlor and economic beneficiary of these trusts,utilizing them as investment vehicles for pension fund management.
The core of the inquiry revolved around four key points:
- Applicability of Reduced Rate: Whether the 15% conventional tax rate stipulated in the Italy-Japan treaty could be applied to dividends received through the trust structure, instead of the standard 26% withholding tax.
- Validity of Residence Certificates: The acceptance of cumulative certificates of residence issued by the Japanese tax authority.
- Reimbursement Procedures: Clarification on the process for claiming tax relief.
- Documentation Requirements: Confirmation of the necessary documentation to qualify for the preferential tax rate.
The Revenue Agency’s response centers on the principle of tax and economic transparency, aligning with the OECD model convention. Specifically, the agency confirmed the principle of applying the 15% rate, provided complete and accurate documentation is submitted.
However, the agency firmly stated that cumulative requests for reimbursement are not permitted. Each beneficiary – in this case, Beta Company – must submit an individual claim, following the guidelines outlined in provision no. 84404/2013, utilizing model A for dividend-related reimbursements.
Evergreen Context: Italy-Japan Double Taxation Treaty
The Italy-Japan double taxation treaty, initially signed in 1960 and amended several times, aims to prevent double taxation of income for residents of both countries. This is especially vital for cross-border investments, like those involving pension funds and trusts. The treaty establishes rules for determining which country has the right to tax specific types of income, and provides mechanisms for relief from double taxation, such as tax credits or exemptions.
The concept of “transparent trusts” is central to this clarification. These trusts are treated as fiscally transparent, meaning the income earned by the trust is attributed directly to the beneficiaries (Beta Company in this case) for tax purposes, rather than being taxed at the trust level. This approach avoids double taxation and ensures that income is taxed in the hands of the ultimate owner.
Implications for Investors
This ruling provides much-needed clarity for Japanese investors utilizing trust structures to invest in Italian companies. It underscores the importance of meticulous documentation and adherence to specific reimbursement procedures. Investors should ensure they possess valid, individual certificates of residence and follow the prescribed application process to benefit from the reduced tax rate.Failure to do so could result in a higher tax burden on dividend income.
By Anna Russo.
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