In the reply to an advance tax ruling dated 19 April 2021, No. 258, the Italian Revenue Agency confirmed the application of the benefits arising from treaty taxation to Italian dividends distributed to a Swiss foundation through a “transparent” investment fund.

The case

The foundation, with legal personality, is a taxable person, although it benefits from an exemption from income taxes under local regulations. The entity provides supplementary pension coverage to the employees of companies belonging to the foundation. In carrying out its activities, the foundation invests part of its financial resources in companies resident in Italy through a Fond Commun de Placement. This is a Swiss-law investment fund without legal personality, intended for qualified investors. The fund is fiscally transparent: income is attributed to the investors according to their participation share. The interpretative issue concerns the tax regime applicable to dividends paid by the Italian companies in which the Foundation invests through the fund.

The Revenue Agency holds that the absence of tax subjectivity of the fund prevents such form of investment from being classified as a “resident person” in Switzerland for the purposes of the Convention against double taxation with Italy.

However, the Foundation may benefit from the treatment provided for by the treaty provisions.

This is also in light of the interpretative developments formalised in the OECD “Partnership Report”, incorporated into the 2014 version of the Commentary on the Model Tax Convention on Income and on Capital.

According to the Partnership Report, a fiscally transparent partnership cannot be treated as a resident person. However, the partners may be recognised as being entitled to invoke the Convention concluded by their States of residence, for the portion of income attributed to them, provided that such income is allocated for tax purposes in the State of residence, regardless of whether it is distributed. These principles have also been adopted in the context of the tax regime applicable to dividends paid by Italian companies to foreign funds that qualify as transparent (Circular No. 6/E/2016). The recognition of treaty benefits is linked to verification of resident status, understood as being a taxable person, as well as to the fact that the recipient is the beneficial owner of the income. Where the condition of “fiscal transparency” and these additional requirements are met, the withholding agent may apply the reduced withholding tax rate (15%).