Tax Treaty Case Law around the Globe 2017

S. 185Italy: The Concept of Beneficial Ownership in Tax Treaties and its General Anti-Avoidance Function

Pasquale Pistone

1. S. 186Introduction

When interpreting article 10(4) of the Italy-United Kingdom Income Tax Treaty (1988), the Italian Supreme Court (Corte di Cassazione) held that the beneficial owner must have the power of a recipient to dispose of income from a legal and economic perspective and be subject to tax in its country of residence. International tax treaty practice follows the OECD Model Tax Convention on Income and on Capital (hereinafter OECD Model), in which beneficial ownership operates as a kind of general clause of the international legal order for curbing abusive practices that can affect entitlement to treaty benefits and harm competition among economic operators.

2. Facts of the Case

A US group of companies owned various holdings and subholdings, including a company incorporated in the Netherlands, which, from 2002 onwards, had an office and seat also in the United Kingdom (hereinafter the plaintiff), to which an Italian subsidiary (controlled by in which it had a 99.83 % holding) had paid dividends in 2001 and 2002.

At the time that the facts of the case took place, Itali...