At the core of Tax Ruling No. 206/2025 issued by the Italian Revenue Agency lies an interpretative issue regarding the applicable tax regime on a dividend that the sole shareholder -fiscally resident in the Russian Federation- intends to distribute, and on which the applicant company – fiscally resident in Italy – must act as the withholding agent (sostituto d’imposta), withholding a fraction of the income for tax purposes.
Under Art. 27, paragraph 3 of Presidential Decree No. 600/1973, profits paid to non-resident persons, in relation to shareholdings not connected with a permanent establishment in Italy, are subject to withholding tax at the rate of 26%.
The principle of primacy of supranational law over domestic law—expressly recognized in Art. 75 of Presidential Decree No. 600/1973, Art. 169 of Presidential Decree No. 917/1986 (TUIR), and more generally in Art. 117(1) of the Italian Constitution—requires that the matter also be assessed in light of international agreements.
The relevant agreement in this case is the Convention for the Avoidance of Double Taxation between Italy and Russia (signed in 1996, ratified in 1997, and in force since 1998), together with its Additional Protocol (signed in 2009, ratified in 2011, and in force since 2012).
Art. 10 of the Convention provides for concurrent taxing rights for the source State and the State of residence of the recipient, but limits the source State’s taxation through reduced rates:
- 5% of the gross amount of dividends if the recipient is a company holding directly at least 10% of the capital of the paying company;
- 10% of the gross amount of dividends in all other cases.
This issue became particularly relevant following the Presidential decree of the Russian Federation “About suspension of action of separate provisions of international treaties of the Russian Federation by the Russian Federation on the tax matters”, which introduced a unilateral suspension of certain provisions of international tax treaties as a countermeasure against Western sanctions related to the war in Ukraine.
With specific reference to Italy (point 22), the decree suspends Articles 5–23, Article 25, and paragraphs a–f of the Additional Protocol. Art. 24—concerning the elimination of double taxation— on the contrary, remains unaffected.
The applicant questioned whether, under the Vienna Convention on the Law of Treaties (1969) (VCLT), the Italy–Russia Convention should still be considered applicable in Italy, thereby allowing the reduced 5% rate to be imposed upon these profits.
The Revenue Agency noted that the Russian decree results in only a partial suspension of the bilateral Convention. Accordingly, except for the provisions suspended, the Convention remains in force, applying the principle of “severability of treaty provisions” under Art. 44 VCLT, which embodies the general principle of preserving the legal effects of acts in case of partial nullity or other cause of inapplicability of a specific act.
Art. 30 of the Italy–Russia Convention provides for only one mode of termination -withdrawal by either Contracting State (see Art. 56 VCLT) – to be carried out through diplomatic channels, not before five years from its entry into force, and with at least six months’ notice before the end of the calendar year.
As neither Italy nor Russia has withdrawn from the Convention, it remains fully in effect for Italy and applicable to the present case.
In this case, when distributing the dividend to the sole shareholder, the applicant company may apply the reduced treaty withholding tax rate, provided the conditions of the Convention are met.
