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Articoli Correlati: taxes - consortium under foreign law - Foreign State

On 8 May 2020, the Italian Revenue Agency published the response to question no. 127 concerning the possibility of benefiting from a tax credit on the amount paid in a foreign State by a consortium under foreign law in the form of a simple company.
As emerges from the principles contained in the OECD Report of 1999 entitled “The Application of the OECD Model Tax Convention to Partnership”, the potential application of the Convention signed between the State of the source (X) and the one of residence of the shareholders of the transparent entity (Italy) is subject to the fact that the latter attributes the income of the transparent company to its residents for tax purposes. It is necessary to distinguish the taxation concerning the income attributed by the consortium for transparency to a Consortium company from the taxation of the services rendered directly by the company through the Consortium. In the hypothesis described by the appeal, Italy, the participant’s country of residence, considers the foreign entities, although transparent according to the legislation of the State of location, as if they were opaque, by virtue of the so-called fiction of opacity of the foreign entity. This means that the income earned by the Consortium is not subject to Italian taxing power since the internal law does not recognize any taxation requirement. Since, for tax purposes, Italy does not allocate the income achieved by the Consortium to its resident, the Convention cannot be invoked for the income achieved by the same with the consequence that State X can exercise its tax claim on the same according to the internal regulations, taxing the shareholder for transparency.
Indeed, any profits that were to be distributed to the resident shareholder would be quantified in a manner similar to that of dividends distributed by a “truly” opaque foreign company, that is, by valuing taxes paid abroad as if they had been paid by the company itself. Therefore, in order to remedy any double taxation, taxes paid abroad for this share of profit would be deducted from the profits that may be paid to the company.