04 August 2025 Italy | EUCJ rules regional taxation of dividends infringes on EU law
In the judgment rendered in the joined cases C-92/24 to C-94/24, published on 1 August 2025, the European Union Court of Justice(EUCJ) has ruled that the Italian regional tax on productive activities (IRAP) levy applied to 50% of dividends paid by European Union (EU) subsidiaries to an Italian bank appears to be in conflict with Article 4 of the EU's Parent-Subsidiary Directive 2011/96 (PSD) because the taxation of 5% of dividends paid by EU subsidiaries allowed under EU law is already covered by the Italian corporate income tax (IRES). Although not directly related to this EUCJ case, one could argue that court's rationale here may also apply in the context of domestic dividends and therefore relevant for dividends distributed to an Italian parent company by its Italian subsidiaries. The EUCJ's decision addressed the whether the taxation for IRAP purposes of 50% of intra-EU dividends that an Italian tax resident corporation received from its EU subsidiaries may conflict with Article 4 of the PSD, which provides that to the extent the exemption method applies, the taxable base of intra-EU dividends in the hands of the parent company cannot exceed 5% of their amount. In the case under dispute, concerning fiscal years 2014 and 2015, an Italian resident bank received dividends from its subsidiaries based in other EU member states. Under Italian law, the Italian bank was subject to tax on the dividends, notably (i) IRES was levied on 5% of their amount1 and (ii) IRAP was levied on 50% of their amount.2 Note that the same tax regime also ordinarily applies to other financial intermediaries, as well as to insurance companies.3 The Italian bank applied for reimbursement of the IRAP paid on the infra-EU dividends, asserting that IRAP levy was in conflict with Article 4(1)(a) of the PSD, which, under the exemption method adopted by Italy, provides for a tax to be levied on just 5% of such infra-EU dividends. The Italian Tax Authorities (ITA) rejected the refund claim, so the Italian bank brought the case before the Italian tax courts. The second-instance tax court remitted the case to the EUCJ, asking the EUCJ to determine whether the IRAP taxation of infra-EU dividends received by Italian banks could be seen as conflicting with Article 4(1)(a) of the PSD. In the EUCJ's view, the IRAP levy on infra-EU dividends received by an Italian bank could be seen as conflicting with EU Law based on three considerations:
Finally, although the EUCJ did not rule on the Italian Government's reverse nondiscrimination4 argument, stating simply that such a situation "is purely internal to the Italian Republic," the court's line of reasoning could be viewed as also applicable to domestic dividends and, hence, might be considered relevant for dividends distributed to an Italian parent company by its Italian subsidiaries. Arguably, a failure to mirror the EUCJ judgment for domestic dividends could be seen as contrary to the Italian constitutional principles of equality and ability to pay.5 The judgment in joint cases C-92/24 to C-94/24 is the first EUCJ decision stating that the IRAP levy on 50% of dividends paid by EU subsidiaries conflicts with Article 4 of the PSD. Italian financial intermediaries and insurance companies should consider the EUCJ ruling in determining whether they should seek refunds for undue IRAP payments on dividends sourced from EU entities or, potentially, domestic entities (by leveraging on the reverse nondiscrimination principle).
Document ID: 2025-1645 | ||||||||
