Edited by Claudio Valz, Guglielmo Ginevra, Dimitri Cadorin
With the judgement in joined cases C-92/24 to C-94/24 of August 1st, 2025, the Court of Justice of the European Union (“CJEU”) ruled that Italy’s regional tax on production activities (“IRAP tax”) on dividends received by Italian financial intermediaries as parent companies from subsidiaries in other Member States violates the Parent Subsidiary Directive (“PSD”) and must be therefore reimbursed.
The scope of this judgement is broad, as it is not limited to Italian financial intermediaries and insurance companies who have received dividends subject to IRAP tax, but extends to all parent companies in a Member State that have been taxed on dividends within the scope of the PSD through taxes other than corporate income taxes. Therefore, these companies should consider evaluating the opportunity of filing a refund claim in their Member State.
Background and facts of the case
The case originates from several refund claims submitted to the Italian Tax Authorities by an Italian Bank with respect to the so-called IRAP tax paid on dividends received from subsidiaries in other Member States.
In particular, the request for refund of the IRAP tax paid was based on the fact that such levy was considered to be in breach of the PSD which precludes dividends distributed by subsidiaries from being taxed at more than 5% of their amount in the hands of the receiving parent companies.
In fact, similarly to other Italian corporate taxpayers, dividends received by Italian financial intermediaries and insurance companies are included in the Italian corporate income tax (‘IRES’) base up to 5% of their total but – differently from other Italian corporate taxpayers – such dividends are also included in the IRAP tax base for 50% of their amount. This led to an overall taxation above the 5% of the dividends’ amount received.
The Italian Tax Authorities denied the refund requests, arguing, among others, that IRAP tax is not considered a corporate income tax and therefore does not fall within the scope of the PSD. The taxpayer subsequently appealed the said rejections up to the Tax Court of Milan, which also denied the refund request, and then up to the Tax Court of Appeal of Lombardy, which decided to suspend the proceedings and refer the matter to the CJEU.
The CJEU’s judgment
The CJEU – disagreeing with the earlier position taken by AG Kokott in her opinion on the case – ruled that the PSD must be interpreted as aiming to avoid double taxation of dividends to its broadest extent, and it therefore should also cover the prohibition of taxing dividends by more than 5% through IRAP tax.
According to the CJEU the above is supported by the below main argumentations:
- from a literal point of view, Article 4(1)(a) of the PSD states that a Member State applying the exemption system should not tax dividends received by a parent company resident in that Member State from its subsidiaries in other Member States for more than 5% of that amount, without restricting this rule to any specific type of tax;
- from a contextual point of view, the list of corporate taxes contained in Annex I, Part B – which do not mention IRAP tax – is relevant for the identification of the subjective scope of the PSD only and it shall not be interpreted as limiting the scope of the PSD for other means;
- from a teleological point of view, from recital 3 of the PSD and the relevant CJEU case-law on the matter, it shall be derived that the PSD seek to avoid double taxation of distributed profits “in economic terms”. Therefore, the exemption provided in the PSD applies with respect to any tax that, in the Member State of residence of the parent company, include in its basis of assessment even a part of those dividends, irrespective of the nature of the tax at issue.
On the basis of all the points above, the CJEU concluded that the PSD should be interpreted to prevent a Member State, which uses the exemption system, from imposing a tax on more than 5% of the dividends received by a resident parent company from subsidiaries in other Member States. This applies even if the tax is not specifically a corporate income tax but includes those dividends or part of them in its tax base.
Actions to consider
This judgment, although not the first one on the matter, is innovative to the extent made clear that the scope of the PSD is to avoid double taxation on dividends received by a parent company regardless of the nature of the tax to which such dividends are potentially subject to.
With specific reference to Italy, it is now expected a legislative amendment from the lawmaker in order to comply with the CJEU judgement. Italian financial intermediaries and insurance companies which are subject to IRAP tax on dividends received in scope of the PSD should in any case consider filing refund claims for the fiscal years not yet statute barred (i.e., from IRAP 2022 first advance onwards for calendar year taxpayers) and to evaluate taking further appropriate actions in respect of claims already filed in order to safeguard their rights to the refund of the IRAP tax paid.
Let’s Talk
For a deeper discussion: