Italy: “Branch exemption” regime for foreign PEs | KPMG | GLOBAL

Italy: Draft decree, “branch exemption” regime for foreign PEs

Italy: “Branch exemption” regime for foreign PEs

The Italian revenue agency in late February 2016 issued a draft decree for implementing Italy’s new “branch exemption” regime. Under the regime, resident enterprises may elect different treatment of the profits and losses of their foreign permanent establishments (PEs) as an alternative to the standard tax treatment with tax credits.


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The Italian revenue agency announced a public consultation on the draft decree guidelines for the branch exemption regime. The period for filing comments closes 31 March 2016.

Draft decree guidelines

Under the draft decree, an election to apply the branch exemption regime can be made in the company’s annual tax return, and is effective as for the tax year to which that return relates. The election has an “all or nothing” application—that it, the election applies for all foreign PEs of the resident company, and automatically applies for any other later-established PEs. Once the election is made, it cannot be revoked. The election ceases to apply after the closure of all exempt PEs.

The draft decree includes guidance concerning the recapture of tax losses, depreciation, and write-downs. Guidance is provided for determining the income of an exempt under the regime, and provisions describe the effects on a “black list” branch of the resident company. The draft decree explains what is the effective of reorganizations,, the withholding tax rules, how to obtain a binding tax ruling, implications for double taxation, and rules for opting to pay an “exit tax” for the deemed capital gains of all exempt branches.


Read a March 2016 report [PDF 530 KB] prepared by the KPMG member firm in Italy: Draft of the ‘Branch Exemption’ implementing decree


Dutch Supreme Court (Hoge Raad) today issued judgments in cases concerning the Dutch dividend withholding tax as imposed on foreign shareholders. The Dutch high court reached a favorable conclusion for dividends distributed to foreign individuals, finding that the imposition of the withholding tax on these dividend distributions was a restriction on the free movement of capital. However, the court found no similar violation with respect to the withholding tax imposed on dividends distributed to a foreign company.

Withholding tax on dividends

The cases concern the Dutch dividend withholding tax levied with regards to dividends distributed to two Belgian individuals and to a French company—all held portfolio shareholdings in a Dutch company. 

At issue was whether levying the dividend withholding tax resulted in a restriction of the free movement of capital. Although the dividend withholding tax rate was the same for non-residents and residents, the dividend withholding tax was a final levy for non-residents—whereas residents could credit it against their individual (personal) or corporate income tax.

Previously, the Dutch Supreme Court had referred these matters to the Court of Justice of the European Union (CJEU) which, in September 2015, issued a judgment finding: (1) on comparing the tax treatment of resident and non-resident shareholders, the corporate income tax / individual income tax paid by resident shareholders must be included in the comparison; and (2) the final tax burden in both situations must then be compared. 

Supreme Court decision

With guidance from the CJEU, the Dutch Supreme Court found the effective tax burden on the Belgian individuals (according to this manner of comparison) was greater, so that there is a violation of the free movement of capital. The individuals, thus, would be entitled to a refund of the dividend withholding tax.

Concerning the French company, the Dutch Supreme Court concluded that the tax burden was not greater than that of a resident company. Therefore, there is no violation of the free movement of capital.


Read a March 2016 report prepared by the KPMG member firm in the Netherlands: Supreme Court renders final judgments in the Miljoen, X and Société Générale cases

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