In Order No. 18106 of 2026, the Italian Supreme Court addressed the taxation of dividends distributed by Italian companies to U.S. pension funds, clarifying the limits within which a less favorable treatment may be applied compared with that granted to Italian, EU and European Economic Area pension funds.
The Court held that subjecting a U.S. pension fund to a higher tax rate than that applicable to pension funds established in Italy, the European Union or the EEA may constitute a restriction on the free movement of capital under Article 63 TFEU. Such unequal treatment is permissible only where the situations being compared are not objectively comparable or where the restriction is justified by overriding reasons in the public interest, within the limits set out in Article 65 TFEU.
The dispute concerned a U.S. pension fund that, in relation to dividends received in 2009 from shareholdings in Italian companies, had been subject to a 15% withholding tax pursuant to Article 10 of the Italy–United States Double Tax Treaty.
The fund subsequently filed a refund claim seeking repayment of the difference between that 15% rate and the 11% rate then provided for by Article 27(3) of Presidential Decree No. 600/1973 for dividends paid to pension funds established in EU Member States or in States belonging to the European Economic Area.
Following the Italian tax authorities’ failure to respond, which amounted to an implied rejection of the claim, the fund challenged the refusal before the Provincial Tax Court of Pescara. The court upheld the claim and recognised the fund’s right to a refund. The decision was later confirmed by the Regional Tax Court of Abruzzo.
The Italian Revenue Agency then appealed to the Supreme Court, arguing that the different tax treatment was justified by differences between the Italian and U.S. pension and tax systems, by the different supervisory regimes applicable to pension funds, and by the need to preserve the coherence of the Italian tax system.
The Italian Supreme Court dismissed the Revenue Agency’s appeal. According to the Court, applying a higher rate to dividends received by a U.S. pension fund is liable to discourage such an investor from investing in Italian companies. It therefore constitutes a restriction on the free movement of capital, a fundamental freedom that, unlike certain other Treaty freedoms, also extends to transactions between EU Member States and third countries.
The Court noted that the Revenue Agency had referred, in general terms, to objectives such as:
- preserving the coherence of the domestic tax system;
- combating tax evasion and tax avoidance;
- safeguarding a balanced allocation of taxing powers.
However, these references were not supported by a specific explanation of how such objectives could justify the higher withholding tax imposed on the U.S. pension fund. A general and abstract reference to public-interest objectives is not sufficient to justify a restriction on the free movement of capital.
The Supreme Court also rejected the argument that the unequal treatment could be justified by the need to ensure the effectiveness of tax audits.
In principle, this objective may justify different treatment of entities established in third countries only where verification of the conditions for obtaining a tax benefit depends on information that can be obtained exclusively from the foreign jurisdiction and where no adequate mechanism for administrative cooperation and exchange of information is in place.
In the case at hand, however, Article 26 of the Italy–United States Double Tax Treaty provides for specific obligations regarding the exchange of information between the tax authorities of the two countries. According to the Court, those provisions enabled the Italian Revenue Agency to carry out the necessary checks concerning the status and characteristics of the U.S. pension fund.
Accordingly, the mere fact that the beneficiary is resident in the United States cannot, in itself, justify less favourable tax treatment.
The Court also reiterated that the mere objective of preventing a reduction in tax revenue does not amount to an overriding reason in the public interest capable of restricting a fundamental freedom guaranteed by EU law.
Of particular relevance is the Court’s analysis of the comparability of Italian and U.S. pension funds.
The Revenue Agency had argued that Italy applies an ETT model to pension taxation, under which taxation also occurs at the investment stage, whereas the U.S. system generally follows an EET model, characterized by exemption at the contribution and investment stages and taxation when pension benefits are paid.
The Supreme Court held that this distinction was not decisive for the purpose of excluding comparability between the relevant situations. Indeed, the Italian legislature had already extended the 11% reduced rate to pension funds established in other EU and EEA States, jurisdictions in which the EET model is widely adopted.
That legislative choice demonstrates that differences in pension-taxation models are not, in themselves, incompatible with the application of equivalent tax treatment to Italian-source dividends.
The decision confirms that, when comparing the withholding tax applied to Italian or European pension funds with that applied to U.S. pension funds, the key legal benchmark is neither the Italy–United States Double Tax Treaty nor the wording of Article 27(3) of Presidential Decree No. 600/1973 considered in isolation.
Rather, the decisive issue is the application of the principle of the free movement of capital under Article 63 TFEU. In the absence of a concrete demonstration that the relevant situations are not comparable, or of a valid justification under Article 65 TFEU, a higher withholding tax imposed on a U.S. pension fund is incompatible with EU law.
From this perspective, Order No. 18106 of 2026 may also be relevant to other institutional investors resident in third countries, provided that they are in a comparable position and can demonstrate that they satisfy the substantive requirements for the tax treatment available to European pension investors.