Italy-USA Double Taxation Treaty

Italy signed its first double taxation agreement with the United States in 1984. The treaty was replaced in 1999 with a new one, called the US-Italy Income Tax Treaty, which was enforced in 2009. Italy has made significant exceptions with respect to the source-country tax rates in order to obtain a partial foreign tax credit which is what led to a better economic cooperation between the two countries. Among the provisions of the new double taxation treaty between Italy and the US, are:

• - the elimination of the branch tax exemption in both countries,
• - new rules for the taxation of pensions,
• - new arbitration regulations in Italy and the United States.

The agreement now follows the Organization for Economic Co-operation and Development model.

Taxation under the new Italy-US double tax agreement

Most of the changes brought to the new agreement refer to the taxation of passive income, business profits, profits and the taxation of branches offices in Italy and the US. The most significant changes were brought to the taxation of dividends, interests and royalties which are now taxed at source. The new tax rates for dividends are:

• - 15% in most cases,
• - 10% if the recipient is a corporation owning at least 10% of the voting power in the US or Italian company paying the dividends,
• - 5% if the beneficial owner is a corporation owning 50% of the voting power.

In order to qualify for the reduced rates, the beneficial owner must own the stock of the company paying the dividends for at least one year. The new tax rate for the taxation of interest has been reduced from 15% to 10%, but new exemptions have also been introduced. Royalties are taxed at different rates under the new Italian-US double taxation agreement.

Our Italian lawyers may provide you with information about all the new provision of the double tax treaty with the United States.

Other provisions of the Italy-US double tax treaty

The new double taxation agreement allows the United States to tax US branches of Italian companies. The new treaty also allows Italy to tax a foreign company on a dividends equivalent amount. The agreement also changes the way pensions and other benefits are taxed. According to the new provisions, these incomes are taxable only in the recipient’s resident country. US and Italian employees and employers will also benefit from deductions for cross-border contributions to pension schemes.

For relevant information about the taxation of foreign companies, please contact our law firm in Italy.