The art. 32-quater of Decree Law 124/2019 (Tax Decree 2020), converted into Law n° 157/2019, has intervened on the tax regime of dividends paid to ordinary partnerships, in order to remedy the legislative vacuum created by the regulatory changes of the rules for the taxation of dividends paid to individuals.
As known, in fact, the ordinary partnerships are subject to the same taxation rules applicable to individuals not in business, for whom the capital income from dividends distribution is determined on the basis of criteria set out in the art. 47 of TUIR.
Following to the Law n° 205/2017 (Budget Law 2018), such provisions were amended, so that the taxation criteria do not longer depend on the interest hold (as previously, in the case of a qualifying holding, dividends contributed to the aggregate taxable income only for 40%, percentage increased to 49,72% and then to 58,14% for the profits formed from the financial year 2008 – in the case, instead, of non-qualifying holding a withholding tax of 26% of the entire amount was levied) and providing that all dividend formed and distributed from 1.1.2018, are subject to uniform taxation, with application of withholding tax equal to 26%.
Such modification gave rise to a debate about the tax treatment of dividends distributed to ordinary partnership (as mentioned, regulated by reference to the aforementioned art. 47). In fact, considering that no withholding can be applied toward ordinary partnerships (cf. Circular 26/E 2004), the rules provided for in art. 47 would result applicable only where providing for the partial taxation of dividends paid to non-qualifying interests holder.
After wavering opinions from doctrine (see Circolare Assonime 17 May 2018 and FNC 14 September 2014) the issue was addressed by Italian Revenue Agency, in the instructions to the RL form of the 2019 income tax declaration model, where the thesis of full taxation was affirmed, although it has kept the transitional partial taxation regime effective but only for dividends distributions deriving from qualifying holding deliberated from 1.1.2018 to 31.12.2022 and formed with profits earned by the financial year at 31.12.2017.
In such scenario, the reasons for the most recent reform intervention referred to in art. 32-quarter of the Tax Decree are clear, aim at remedying a situation of great uncertainty.
Pursuant the art. 32-quarter, profits distributed to ordinary partnership, by companies and entities resident, are taxed in accordance to the receiving partner personal regime, as if the intermediary ordinary partnership does not exist, therefore, the possible cases would result as follows:
- in the case of partner/stock corporation, profits are excluded from the aggregate taxable income for the 95% of their amount;
- in the case of partner/non-stock corporation, profits are excluded from the aggregate taxable income for 41,68% of their amount;
- in the case of partner/natural person who owns holding, qualifying and not-qualifying, not in business regime, profits are subject to withholding tax equal to 26%. In this case, the withholding tax is levied by the company that distributes the profits, based on the information provided by the ordinary partnership.
The rule establishes that the attribution to partners of dividends paid to ordinary partnership – under the principle of tax transparency – operates in a different way from the typical principle of tax transparency that characterize the ordinary partnership. In the latter case, in fact, the income attributed to the partners respects the determination criteria according set by the rules provided for the distributing ordinary company. Since the tax regime for profits distributed to ordinary partnership depends on the quality of the receiving partner, as if the investment was made directly by himself, the art. 32-quarter provides for a sort of “direct” tax transparency.
Despite the clarifications offered by law, there are still many grey areas on the matter, in particular, if the profits are distributed by foreign entities.
In fact, the rule makes exclusive reference to the profits paid to ordinary partnership by the companies and entities referred to in art. 73, par. 1, lett. a), b) e c) of TUIR, excluding, therefore, non-resident companies and entities. As a consequence, the intense tax transparency regime at issue does not concern foreign companies owned or participated by resident ordinary companies.
This different treatment leads to the assumption that in all cases of foreign dividends collection by natural person not in business, through an ordinary partnership, these contribute in full to the formation of the aggregate income of the ordinary partnership, attributed for tax transparency to partner/natural person.
In such situations, the risk of full double taxation is material – upstream on the issuing company and downstream on the ordinary partnership -, with penalizing effects on the individual partner, who would suffer a much heavier tax burden.
Because of this, it can be imagined that such a situation could be among the measures prohibited by art. 63, Par. 1, TFUE, since it constitutes a restriction on the movement of capital.
This should suggest the Italian Revenue Agency to clarify the issue, because the art. 32-quarter, interpreted in this way, is contrary to Community principles of free movement of capital.
Author: Mario Manfredi
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