The conventions against double taxation have a fundamental role but often problems arise regarding their applicability when one of the parties involved in an international transaction is to be considered transparent.
The Revenue Agency intervened on this matter in its response to ruling no. 258/2021. The case analyzed in the practice document concerns a Swiss foundation that invests in Italian companies through a Swiss fund which is considered transparent for the purposes of Swiss tax legislation.. The problem arises of understanding whether the withholding tax provided for by the agreement can be applied to dividends from Italian shares held by the transparent fund (equal to 15%) or the basic withholding tax should apply (equal to 26%).
The Inland Revenue has solved this case by relying primarily on the fact that the fund, being fiscally transparent, cannot be considered as a subject resident in Switzerland for the purposes of the Convention between Italy and Switzerland and therefore cannot request the application of the conventional withholding tax which, however, can be requested by the fund's shareholders.
According to the Revenue Agency, shareholders of transparent entities can request the application of the Convention only when national legislation provides that the income of the transparent entity is taxed by its shareholders regardless of the actual distribution of the same. The Agency then concludes by emphasizing that it is in any case binding, for the purposes of applying the Convention, that the members qualify as residents and as beneficial owners of the income in question.