The main sources of international tax law are bilateral and multilateral tax treaties.

Italy has an extensive network of (more than 100) bilateral tax conventions, primarily aimed at preventing and/or mitigating double taxation on income and capital (“DTCs”).

The Italian treaty network also includes specific agreements with a limited territorial scope, such as those regulating the taxation of cross-border workers (ie, the agreement concluded with Switzerland; see also the specific provisions included in Article 15 of the DTCs with Austria, France and San Marino).

A number of specific bilateral treaties address the avoidance of double taxation with respect to inheritance and gift taxes (ie, the agreement on inheritance and gift taxes with France and those on inheritance tax with Denmark, Greece, Israel, Sweden, the UK and the US).

Tax Information Exchange Agreements (“TIEA”) have been concluded with specific low tax jurisdictions (Andorra, Bermuda, Cayman Islands, Cook Islands, Guernsey, Gibraltar, Isle of Man, Jersey, Liechtenstein, Monaco and Turkmenistan) to ensure a minimum standard of effective exchange of information on a bilateral basis.

In addition to bilateral agreements, Italy is a party to multilateral agreements, usually concluded to promote and foster administrative cooperation and assistance among States (see 8.1 Availability and Legal Basis).

In addition to the bilateral and multilateral instruments, Italy is bound, as a Member State of the European Union (“EU”), by EU Treaties and legislation, as interpreted by the European Court of Justice, that have primacy over domestic law, with the consequence that Italian public administration and Italian courts have the obligation not to apply the domestic legislation conflicting with the EU one.

Among EU legislation, Directives play an important role, harmonising the domestic legislation of Member States in specific areas of law. A wide range of Directives has been used in direct tax matters (eg, Merger Directive, Parent-Subsidiary Directive, Interest and Royalties Directive, ATAD, Pillar Two Directive) and in the field of administrative cooperation between national tax authorities (ie, the eight DACs).

An important role, especially as a standard for interpretation, is also played by soft law instruments, such as (at EU level) recommendations and opinions of the EU Commission and (at an international level) the OECD Commentaries on the OECD Model, the OECD Transfer Pricing Guidelines and the BEPS Action Reports.

In the Italian legal system, the rules set out in international tax treaties and in EU law are only subordinate to the inviolable principles and fundamental rights of the Italian Constitution and prevail over any conflicting internal statutory and regulatory rules. This follows from the principles established in Articles 10 and 117(1) of the Italian Constitution, which provide, respectively, that Italy aligns with the generally accepted rules of international law and that the legislative power of the Italian State and the Italian Regions shall be exercised in compliance with the constraints deriving from EU legislation and international obligations.

The primacy of the rules set out in DTCs over domestic tax provisions is also recognised in the domestic legislation. For example, Article 75 of Presidential Decree No 600/1973 and Article 41 of Presidential Decree No 601/1973 recognise the applicability of DTC provisions over Italian domestic rules on income taxes and tax allowances. Article 169 of Presidential Decree No 917/1986 (the “Income Tax Code” or “ITC”) also confirms the general principle of the prevalence of DTCs over domestic tax law; however, it provides that domestic tax provisions continue to apply, if they are more favourable to the taxpayer, even by way of derogation from DTCs.

As established by the consistent case-law of the ECJ (since the landmark decisions in Costa v Enel, van Gend en Loos and Simmenthal), the primacy of EU law over domestic law is ensured through the mechanism of non-application of the conflicting domestic provisions by Italian public administration and national courts.

DTCs concluded by Italy are largely drafted in accordance with the provisions of the OECD Model Tax Convention (“OECD Model”), although certain departures can be found across its treaty network.

Among the main departures, it is worth mentioning the following:

• with regard to the taxation of income from independent personal services and the related notions of “enterprise” and “business,” most of the Italian DTCs continue to include a separate provision broadly reflecting Article 14 of the OECD Model (before its deletion in 2000);
• in a relevant number of DTCs, Italy allows the source State to levy limited taxation on outbound royalties, in line with the reservation expressed in Article 12(1) of the OECD Model, consistent with the approach adopted by the UN Model Double Taxation Convention (“UN Model”). At the same time, Italy often reserves a more favourable treatment to certain categories of royalties (eg, those relating to copyrights on literary, artistic or scientific works), granting full exemption from source-state taxation (eg, DTCs with Denmark, Germany and France);
• some of the DTCs concluded by Italy with developing countries (eg, Chile, Hong Kong, Mexico and Panama) and some of the most recent ones (ie, Colombia, Jamaica and Uruguay) are strongly influenced by the UN Model, retaining nevertheless elements typical of the OECD Model (eg, rules governing the attribution of profits to permanent establishments).

Italy is a signatory party to the OECD Multilateral Instrument (“MLI”) since 7 June 2017.

As of today, Italy has not ratified the MLI yet and thus, the MLI is not in force and does not affect the Italian treaty network.

Italian tax law applies throughout the territory of the Italian Republic, is binding on all persons to whom it is addressed and may be applied and enforced by the public administration and national courts.

No territories outside Italy are subject to Italian tax law, with the sole exception of the municipality of Campione d’Italia (geographically located in Switzerland).

Article 2 of the ITC provides that individuals are deemed to be resident in the territory of Italy for tax purposes if, for more than 183 days in a calendar year, considering also fractions of a day, they meet (alternatively) one of the following conditions:

• they are registered with the Registry of the Italian Resident Population (so-called “Anagrafe”) of an Italian Municipality;
• they have their “domicile” in Italy;
• they have their “residence” (as defined in the Italian Civil Code) in Italy;
• they are physically present in Italy.

The registration with the Anagrafe of an Italian Municipality is a criterion of a merely formal nature, based solely on the circumstance that the habitual abode or the domicile of an individual is registered with the Anagrafe. It constitutes a rebuttable presumption for the Italian Tax Authorities.

For tax residence purposes, domicile must be intended as the place where the taxpayer’s personal and family relations are primarily developed. As clarified by the Italian Revenue Agency in Circular Letter No 20/2024, “personal and family relations” encompasses not only legal relationships established by law (such as marriage or civil unions), but also stable personal relationships that demonstrate a connection to Italy (for example, cohabitation). It further includes ongoing documented social connections (such as annual membership in cultural or sports clubs) and behaviours that clearly indicate an intention to maintain a meaningful link to Italy (such as maintaining a home with active utilities that is regularly used on weekends or during leisure time).

According to the civil law notion of residence, an individual is considered resident in Italy if he has his habitual abode therein, meaning that he has a place at his disposal where he remains and/or returns with a certain degree of stability and continuity, with the intent to live in that place permanently.

Lastly, with effect from 1 January 2024, a new criterion based solely on physical presence in the State’s territory has been introduced. In this respect, the presence in the Italian territory, even for fractions of the day, amounts to presence in Italy for the entire day. As clarified in Circular Letter No 20/2024, particular situations where the presence in Italy is merely temporary or incidental can be evaluated to exclude tax residence in Italy (eg, an airport transfer in Italy in the course of a trip from and to foreign countries).

Italian tax law does not contain a domestic split-year provision. A similar clause is included only in the DTCs with Germany, Panama and Switzerland.

Individuals who are tax residents in Italy are subject to tax on their worldwide income at progressive tax rates (the maximum rate is 43% on taxable income exceeding EUR50,000).

Possible double taxation arising from taxes levied in the foreign source State could be mitigated with the application of a credit for taxes paid abroad. According to Article 165 of the ITC, taxes paid abroad can be credited, provided that the following conditions are cumulatively met:

• income on which foreign taxes have been paid is considered a foreign-sourced income (see 2.4 Taxation of Non-Resident Individuals);
• income on which foreign taxes have been paid is included in the taxable income for the purposes of Italian income taxes;
• foreign taxes have been effectively and finally paid abroad.

If the above conditions are fulfilled, the tax credit that can be offset against net taxes due would be subject to the following limitations:

• it can be considered only up to the portion of Italian taxes due corresponding to the ratio between foreign-sourced income and overall income; and
• in any case, up to the amount of net tax due in Italy.

In addition to the provisions of Article 165 of the ITC, the tax credit provisions of the applicable DTCs also apply. As interpreted by the Italian Supreme Court of Cassation in its recent case law, if the content of the two provisions differs, the conventional one (if more favourable to the taxpayer, as it generally is) should prevail.

An interesting example of that is the interpretation of the qualifying condition regarding the inclusion of foreign income in taxable income for Italian income tax purposes. This condition implies that, where an item of income is subject in Italy to final withholding tax or to substitute tax (eg, dividends received by Italian resident individuals), it is not included in taxable income and cannot benefit from the tax credit under domestic rules.

Decision No 25698/2022 of the Italian Supreme Court of Cassation addressed the taxpayer’s entitlement to a foreign tax credit on dividends received. The Court held that this entitlement exists if the relevant double taxation convention contains a clause providing that a tax credit should be granted when income is mandatorily subject to withholding or substitute tax – in such cases, the convention’s provisions on tax credits prevail over the domestic rules in Article 165 of the ITC. This applies specifically when the taxpayer does not have the option to include the income in the personal income tax base.

Non-resident individuals are taxed in Italy only on income that is considered to have an Italian source. Specific rules determine which types of income are regarded as sourced in Italy.

In particular, pursuant to Article 23 of the ITC, the following income is deemed to be produced or realised in Italy:

• income from immovable property located in Italy;
• income from capital paid by the Italian resident/located entities, with the exclusion of interest on bank and postal accounts;
• income from employment and self-employment, if the work activity is physically performed when present in Italy;
• business income derived from activities carried on in Italy through a permanent establishment;
• other income derived from activities carried on in Italy or related to assets located in Italy, as well as from the sale of participations in resident companies;
• income derived by a non-resident partner of a resident partnership;
• pensions, similar allowances and termination payments, as well as income assimilated to employment income, when paid by the Italian resident/located entities;
• income from the use of intellectual property, industrial patents, trademarks, processes, as well as formula and know-how acquired in the industrial, commercial or scientific field, when paid by Italian resident/located entities; and
• compensation earned by enterprises, companies or non-resident entities for the performance of artistic or professional services on their behalf in Italy, if paid by Italian resident/located entities.

Article 73(3) of the ITC provides that a company or an entity is deemed to be tax resident in Italy for income tax purposes if it has, for more than 183 days in a tax period, any of the following alternative elements located in the Italian territory:

• the registered office;
• the place of effective management (“POEM”);
• the principal place of ordinary management.

The requirement of the registered office is a criterion of a merely formal nature, solely based on the place indicated in the legal entity’s bylaws.

The POEM refers to the location where the essential management and commercial decisions for a business are actually made. It is the place where the company’s top management regularly makes strategic decisions that affect the company as a whole. This is true regardless of the governance model in place and requires that such decision-making be consistent and of a significant degree of permanence.

The other substantial requirement concerns the identification of the place where the company’s normal functioning and ordinary administration are carried out. As clarified in Circular Letter No 20/2024, the indicators for the location of day-to-day management may vary depending on the main activity carried out,, as well as the company’s business structure and organisation.

The residence of undertakings for collective investments is determined exclusively by their place of establishment. Therefore, undertakings for collective investments are considered Italian tax residents if established in Italy.

Lastly, according to Article 73(5-bis) of the ITC, the following rebuttable presumptions of tax residence apply:

• companies and entities holding controlling shareholdings in Italian resident companies are presumed to be resident in Italy, if they are, alternatively:
1. controlled, also indirectly, by Italian resident companies; or
2. managed by a board of directors (or other equivalent management body) composed mainly of directors who are tax residents in Italy; and
• trusts and similar arrangements established in jurisdictions that do not allow an exchange of information with Italy are presumed to be resident in Italy, if, alternatively:
1. at least one of the settlors and at least one of the beneficiaries are both Italian tax residents; or
2. an Italian tax resident person contributes to the trust’s real estate assets or rights.

The domestic definition of permanent establishment (“PE”) is provided by Article 162 of the ITC, whose current version is the result of the amendments made by Law No 205/2017 that has aligned the domestic notion to the one contained in the latest version of the OECD Model (2017), which, in turn, has incorporated the conclusions of the Final Report on Action 7 of the OECD BEPS Project.

In addition to the examples of places of business that can be regarded as constituting a material PE under Article 5(2) of the OECD Model (so-called “positive list”), Article 162(2)(f-bis) of the ITC includes the case of a significant and continuous economic presence in the Italian territory, without any physical presence therein. Such an example has been included primarily to address issues related to the profits generated by digital businesses.

The definition of construction PE provides for a three-month threshold (Article 162(3) of the ITC), shorter than the one provided for in Article 5(3) of the OECD Model (12 months).

In line with Article 5 of the OECD Model, the Italian domestic provision includes a rule subjecting all the exceptions to the existence of a PE (so-called “negative list”) of paragraph 4 to the “preparatory and auxiliary” condition (Article 162(4-bis) of the ITC) and the so-called anti-fragmentation rule (Article 162(5) of the ITC).

The domestic notion of agent PE set forth by Article 162(6) of the ITC only refers to persons “operating” for the conclusion of contracts that are routinely concluded without material modification by the foreign enterprise, without requiring (as Article 5(5) of the OECD Model) that they should also play the “principal role” in this respect.

Article 162(7-ter – 7-quinquies) of the ITC contains a safe-harbour from the existence of an agent PE for asset managers or advisory companies operating in Italy and acting on behalf of foreign investment vehicles or their controlled entities (so-called investment management exemption” or “IME”). Under the IME, the former entities are considered independent and, thus, do not give rise to an agent PE of the foreign investment funds or of the other entities of the investment structure (to be noted that, as clarified in Circular Letter No 23/2024, IME does not apply to exclude the existence of an agent PE of the non-Italian management company), if the following cumulative conditions are met:

• the investment funds and their (directly or indirectly) controlled entities for which the asset manager/advisory company operates are resident in a white-list jurisdiction;
• the investment funds meet specific requirements of independence (ie, professional management of investments in the interest of investors and autonomously from them, according to a predetermined investment policy; subjection to regulatory supervision; plurality of investors);
• the asset manager/advisory company does not have positions in management or supervisory bodies of the foreign investment funds (or of any of their direct or indirect subsidiaries) and is not entitled to more than 25% of the economic results; and
• the asset manager/advisory company supplying services within the same group is remunerated at arm’s length and the remuneration is supported by adequate documentation prepared in accordance with the transfer pricing rules.

The great majority of the DTCs currently in force have been concluded on the basis of versions of the OECD Model that predate 2017. As those versions are usually more favourable to the taxpayers, the provisions of the relevant conventions should prevail over the current domestic definition of PE; in particular:

• no reference is made in the positive list to the significant and continuous economic presence in the Italian territory, without any physical presence therein;
• the definition of construction PE generally provides for a qualifying threshold higher than three months (six or 12 months);
• no reference is generally made to the “preparatory and auxiliary” condition in the negative list or to the anti-fragmentation rule;
• the notion of agent PE usually refers only to the case of persons habitually concluding contracts in the name of the foreign enterprise, without any reference to the activities leading to those contracts.

In respect to the last point above, it should be remarked that, in line with the observation made by Italy to the Commentaries on Article 5 (including that of 2017), Italy has always reserved the right to interpret, among others, the paragraphs of the Commentary dealing with the concept of “conclusion of contracts” by the agent (see paragraph 97 of the 2017 OECD Model) consistently with the case-law of the Italian Supreme Court of Cassation.

Since the early 2000s, the Italian Supreme Court has adopted a broader interpretation of the agent PE scope, embracing all cases where a person habitually concludes or operates for the conclusion of contracts in Italy that are concluded abroad without material modifications by the non-resident enterprise, without requiring that such a person plays the principal role leading to their conclusion. In this respect, for example, in the leading Philip Morris case (Decision No 7682/2002), the Italian Supreme Court held, inter alia, that the participation of representatives or employees of an Italian entity to the negotiation of contracts between a non-resident company and another resident entity could fall within the notion of “authority to conclude contracts in the name of the company”, even if no power of representation is granted to the Italian entity.

With the recent update to the 2017 OECD Model (dated 18 November 2025), Italy has eliminated the aforementioned observation, effectively opening the way to a more OECD-oriented interpretation of the provisions of its DTCs.

Individuals

Rental income from real estate assets is subject to income tax at progressive rates on 95% of the amount. However, taxpayers may elect to opt for flat taxation with a 21% substitute tax.

Income from real estate assets located abroad is included in taxable income and subject to progressive income tax rates. The taxable amount equals the net income subject to tax in the situs country. If no foreign taxation applies, the taxable income equals the rental income minus a 15% forfeiture reduction. If the foreign real estate assets are not rented, no income taxes apply.

Capital gains from the sale of real estate assets are not subject to income taxes in Italy if:

• they have been used for the greater part of the time as the principal dwelling of the owner or his family;
• they are sold after five years from the purchase/construction (ten years from the end of the refurbishment works, in case the assets have been subjected to certain refurbishment works that entitle the owners to tax facilitations);
• they have been received by way of inheritance or donation.

If real estate assets are sold within five years (ten years in the case of refurbishment works) of purchase/construction, the related capital gains are subject to income tax at progressive rates. However, the taxpayer may elect, in the deed of sale, to apply a 26% substitute tax.

Italian resident individuals shall also pay an annual wealth tax on the value of real estate assets held in foreign countries at 1.06% tax rate.

Companies

Generally speaking, income from real estate derived by companies constitutes business income and is subject to corporate income tax (“CIT”) pursuant to Article 81 of the ITC.

Individuals

Italian tax legislation regulates in detail the computation of business income and the criteria for evaluating assets and liabilities forming the working capital of individuals and partnerships carrying on commercial activity. Relevant rules are generally those applicable for the purposes of CIT, with the specific exceptions expressly provided (see Article 56 of the ITC).

In general terms, taxable business income is the income resulting from the profit and loss accounts, as adjusted in accordance with the applicable tax rules.

Business profits are taxable and business expenses are normally deductible on an accrual basis, with a few exceptions. Business expenses and other costs are deductible if and to the extent they are inherent to the activity carried out or to the assets producing taxable income, determined or reliably determined, certain as to the tax period they relate, charged to the profit and loss account of the tax period in which they accrue.

Italian commercial and non-commercial partnerships are fully transparent for tax purposes, meaning that income is attributed to the partners (in proportion to their participation in the profits) and taxed in their hands, regardless of actual distribution, at progressive tax rates.

Tax losses derived from business activities and those attributed by transparency are offset against other income derived by the individual and the possible excess can be carried forward, without any time limit, and offset against business income of the following tax period in the measure of 80% (Article 8(3) of the ITC).

Companies

All income derived by companies that carry on commercial activities is considered business income and subject to CIT at 24% tax rate.

The taxable base for CIT purposes is the company’s worldwide income as reported in the profit and loss account for the relevant financial year, prepared in accordance with applicable accounting standards and adjusted in accordance with relevant tax law provisions.

Revenues and expenses have, in principle, tax relevance on an accrual basis, in accordance with Article 109 of the ITC. Specific exceptions to the accrual principle are established in relation to peculiar items of income/expenses, such as dividends and directors’ fees.

Dividends

Inbound dividends

Dividends received by resident individuals are subject to a 26% final withholding tax or substitute tax.

Dividends received by resident individuals in the exercise of a business activity, commercial partnerships and companies are partially included in the taxable base for income tax purposes (in the measure of 58.14% for individuals/partnerships and 5% for companies).

Outbound dividends

Dividends paid by Italian resident entities to non-resident shareholders are, in principle, subject to a 26% final withholding tax pursuant to Article 27 of Presidential Decree No 600/1973.

The following domestic reduced tax rates or exemptions apply:

• pursuant to Article 27(3-ter) of Presidential Decree No 600/1973, a reduced 1.2% withholding tax applies, provided that the recipient of the dividends is an entity that is subject to CIT in an EU/EEA State and is tax resident therein;
• pursuant to Article 27(3) of Presidential Decree No 600/1973, dividends paid to EU/EEA established undertakings for collective investment (“UCIs”), provided that either the UCIs are established according to the Directive 2009/65/EC (so-called “UCITS Directive”) or their fund manager is subject to regulatory supervision in its country of establishment according to Directive 2011/61/EU (“AIFM Directive”); and
• pursuant to Article 27-bis of Presidential Decree No 600/1973, implementing Directive 2011/96/EU (so-called Parent-Subsidiary Directive or PSD), no withholding tax is levied, if the relevant conditions are met, on dividends paid to an EU parent company holding a direct shareholding of at least 10%.

In addition, the domestic withholding tax rate can also be reduced (generally, to 15%) pursuant to the relevant provisions of the applicable DTCs. As an alternative to the conventional mitigation, the taxpayer may claim a refund up to 11/26 of the withholding tax applied, provided that it has paid final taxes on dividends in its residence State (Article 27(3) of Presidential Decree No 600/1973).

Interest

Inbound interest

Interest income on loans granted to Italian resident individuals is included in the taxable base for income tax purposes and taxed at progressive tax rates. The payment is subject to a 26% advance withholding tax.

Pursuant to Articles 1 and 2 of Legislative Decree No 239/1996, interest income received by Italian resident individuals on bonds issued by both Italian and foreign banks, listed companies, as well as Italian and foreign listed bonds, are subject to a 26% substitute tax (12.5% substitute tax, if the bonds are issued by the Italian Government or by the governments of white-list jurisdictions).

Withholding and substitute taxes are levied by Italian financial intermediaries that intervene in the payment. Pursuant to Article 18 of the ITC, if the foreign-sourced interest is not received or paid through an Italian intermediary, taxpayers must report it in the income tax return and apply the substitute taxation. However, the taxpayer may elect to include the interest in taxable income for individual income tax at progressive rates and, in such a case, be entitled to the foreign tax credit.

Interest received by companies is ordinarily included in the taxable income, subject to CIT at 24% rate.

Outbound interest

Interest paid by Italian resident entities to non-resident shareholders is, in principle, subject to a 26% final withholding tax pursuant to Article 26 of Presidential Decree No 600/1973. A 12.5% rate applies to interest on government bonds.

The following domestic reduced tax rates or exemptions apply:

• pursuant to Article 26(5-bis) of Presidential Decree No 600/1973, interest paid on medium/long-term loans granted to Italian companies by EU/EEA banks and insurance companies, as well as institutional investors resident in white-list jurisdictions, is exempt from withholding tax;
• pursuant to Article 26-quater of Presidential Decree No 600/1973, implementing Directive 2003/49/EC (so-called Interest and Royalties Directive or IRD), no withholding tax is levied (if the relevant conditions are met) on interest paid to an associated EU company; and
• pursuant to the provisions of Article 6 of Legislative Decree No 239/1996, interest on bonds and similar instruments is exempt from withholding tax, provided that foreign-resident recipients qualify as:
1. entities resident for tax purposes in a white-list jurisdiction;
2. international organisations and bodies established under international agreements implemented and effective in Italy;
3. foreign institutional investors established in white-list jurisdictions (eg, insurance companies, investment funds, SICAVs, pension funds and asset management companies); or
4. central banks.

In addition, the domestic withholding tax rate can also be reduced (generally, to 10%) pursuant to the relevant provisions of the applicable DTCs.

Royalties

Inbound royalties

Royalties derived by the author/inventor of intellectual property, industrial inventions, processes, formulas and know-how are taxable on 75% of their amount (or 60% if the author/inventor is under 35).

Royalties derived by individuals other than the author/inventor are taxable on 75% of their amount if the assets generating the royalties have been acquired for consideration and on 100% of their amount if not acquired for consideration.

Royalties derived by companies are ordinarily included in the taxable income, subject to CIT at 24% rate.

Outbound royalties

Royalties paid by Italian resident entities to non-resident persons are subject to a 30% final withholding tax (Article 25 of Presidential Decree No 600/1973).

If the relevant conditions are met, withholding tax can be reduced (usually in a range of 5% to 15%) or exempt pursuant to the applicable provisions of the DTCs or under the domestic provisions implementing the IRD.

Individuals

Capital gains realised by Italian resident individuals from the sale of shares, bonds and other financial instruments issued by both resident and non-resident entities are subject to a 26% substitute tax pursuant to Article 5(2) of Legislative Decree No 461/1997.

If the alienator is a non-Italian resident individual, capital gains from the sale of non-listed non-substantial participations (ie, equal to at least 20% of voting right or 25% of participation in the capital) are exempt, with the exception of capital gains on participations whose value derives for more than 50% from real estate assets located in Italy (see Article 5(5 – 5-bis) of Legislative Decree No 461/1997).

Capital gains realised by Italian resident individuals engaged in business activities are included in business income and are taxable at progressive tax rates. If the conditions for the application of the participation exemption regime apply, capital gains are 41.86% exempt.

Companies

Capital gains from the sale of participation are usually included in the taxable income, subject to CIT at 24% rate (see Article 86 of the ITC).

Under Article 87 of the ITC, the participation exemption (“PEX”) regime exempts 95% of capital gains. The PEX regime applies if the following requirements are cumulatively fulfilled:

• the participation has been uninterruptedly held at least from the beginning of the 12th month preceding the sale;
• the participation has been booked as a fixed financial asset since the first financial statement closed after its acquisition;
• the participating company is resident in a jurisdiction without a privileged tax regime (see 6.3 Interaction Between Tax and Criminal Procedures); and
• the participated company carries out a business activity.

Starting in 2024, following decisions by the Italian Supreme Court (No 21261/2023 and No 27267/2023), the PEX regime has been extended to address previous discrimination between non-Italian and Italian resident enterprises. As a result, non-resident companies and entities that do not have a permanent establishment in Italy but are subject to corporate income tax in an EU or EEA State can now benefit from the PEX regime for capital gains, provided all the previously mentioned conditions are met.

According to Article 51 of the ITC, all sums, including compensations/benefits in kind, received by employees, on whatever legal basis, in connection with their employment relationship, are considered part of the salary and are subject to tax at progressive rates. Taxes on employment income (including compensation/benefits in kind) are levied at source by employers.

According to Article 51(8-bis) of the ITC, remunerations received by employees from an activity permanently performed abroad are taxable on a forfeit basis, according to the amount determined by a specific annual Ministerial Decree, provided that the activity performed abroad is the exclusive object of the employment and the employee stays abroad for more than 183 days in a 12-month period.

According to the consistent administrative practice of the Italian Revenue Agency (see Resolution No 92/2009, Rulings No 199/2025 and No 8/2026), employment income from employees’ incentive plans attributed and vested (wholly or partially) outside Italy but paid in a tax period when the employee is tax resident in Italy are considered fully taxable in Italy on a cash basis, with the possibility to offset the related tax credit for taxes paid abroad.

Cross-border workers benefit from preferential tax provisions under both specific domestic rules (eg, an exempt threshold of EUR10,000) and international agreements (eg, exclusive taxation either in the State of source or in the State of residence).

International remote working has not been specifically addressed by Italian tax legislation. However, the Italian Revenue Agency has issued specific guidelines in Circular Letter No 25/2023, clarifying that remote working does not affect ordinary domestic and treaty-based rules regarding:

• the residence of individuals;
• the territoriality of employment income; and
• the criteria for the existence of a PE of the foreign employer in Italy.

There is nothing else that would worth highlighting in this jurisdiction.

As of now, Italy has not taken any steps to adopt or implement Amount B.

Italy does not have a clearly articulated, standalone official position on Pillar One Amount A.

Italy has introduced the global minimum tax under Pillar Two, implementing Directive (EU) 2022/2523 (“Pillar Two Directive”) through Articles 8-60 of the Legislative Decree No 209/2023.

The provisions on the global minimum tax apply to tax periods starting on or after 31 December 2023, except for those regulating the UTPR, which apply to tax periods starting on or after 31 December 2024.

Italian domestic implementing provisions do not contain any deviations from the provisions of the Pillar Two Directive.

As a consequence, in line with the Directive, the domestic provisions differ from the OECD Model Rules in the following aspects:

• the scope of application is extended to domestic groups, in addition to multinational groups, exceeding the threshold of EUR750 million; and
• all entities located in a low-tax Member State are subject to top-up tax, including ultimate parent entities.

The Digital Services Tax (DST) has been effective in Italy since 1 January 2020, pending international negotiations to reach agreed solutions to address the taxation of the digital economy. Consistently, a specific “sunset clause” provides that the DST is repealed once those solutions enter into force (note that this effect would have been achieved with the entry into force of the implementing provisions of Pillar One-Amount A).

The DST applies to resident and non-resident entities carrying on business activities that, individually or at group level, realise revenues from the supply of digital services and generate worldwide revenues of at least EUR750 million.

The DST applies to revenues derived from three categories of digital services:

• targeted advertising on digital interfaces;
• provision of multilateral digital interfaces that allow users to stay in contact and interact with each other, also for the purposes of facilitating the supply of goods and services; and
• transmission for the consideration of data collected from users.

Excluded from the scope of the DST are, inter alia, the direct supply of goods and services, the provision of multilateral digital interfaces for the supply of financial services, payment services, digital contents, communication services, as well as certain energy trading platforms.

The territoriality of the DST is determined by the user’s location in Italy when using the specific digital service, as reflected in the device’s location (determined by IP address or other geolocation tools).

The taxable base consists of taxable revenues net of VAT and other indirect taxes, excluding revenue from intra-group transactions. The applicable tax rate is 3%.

As clarified by the Italian Revenue Agency in the Circular Letter No 3/2021, the DST qualifies as an indirect tax and, as a consequence, falls outside the scope of DTCs.

Tax evasion consists of an unlawful and illegitimate conduct which directly violates specific tax provisions. If tax evasion is carried out through artificial conduct apt to create a false representation of reality, it could amount to tax fraud (see Article 1(1)(g-ter) of Legislative Decree No 74/2000).

Contrary to tax evasion, tax avoidance does not involve any violation of tax provisions; rather, it is a lawful conduct aimed at circumventing the rationale or the application of specific tax provisions or principles of the tax system. The Italian tax system has several provisions addressing both general tax avoidance (ie, the general anti-avoidance rule, or “GAAR”) and specific abusive results arising from particular transactions or income items (so-called specific anti-avoidance rules, or “SAARs”).

Contrary to tax evasion and tax fraud, tax avoidance does not trigger criminal liability (see Article 10-bis(13) of Law No 212/2000).

The main anti-avoidance mechanism is the Italian GAAR, which applies where no specific SAARs could apply.

Under the Italian GAAR, abuse of law exists if a transaction lacks economic substance and, although formally consistent with tax law, is intended to obtain undue tax benefits. In particular, a transaction constitutes abuse of law if the following conditions are cumulatively met:

• the transaction has no economic substance (ie, those unsuitable to realise significant effects other than tax benefits);
• the transaction gives rise to undue tax benefits (ie, a tax saving obtained contrary to the purposes of the relevant tax law provisions and/or of the principles of the tax law system); and
• the realisation of the undue tax benefits is the essential effect of the transaction.

As pointed out in the recent guidelines issued by the Italian Ministry of Economy and Finance on the application of the Italian GAAR dated 27 February 2025, in the scrutiny on the existence of an abuse, primary importance should be given to the assessment of the existence of an undue tax benefit, so that its non-existence excludes per se the abusive nature of the conduct, without need to assess the occurrence of the other qualifying conditions.

In any case, a transaction should not constitute an abuse of law if it is justified by valid economic reasons (which are more than marginal), including managerial and organisational needs apt to structurally and functionally improve the taxpayer’s business.

The existence of valid non-marginal economic reasons must be assessed by verifying whether the transaction would have been carried out in the absence of those reasons. The burden of proving them is on the taxpayer.

In the event of a challenge under the Italian GAAR, the Italian Revenue Agency should comply with specific procedural requirements that allow the taxpayer to demonstrate that no abuse occurred.

The Italian tax system provides several lists of non-cooperative/high-risk jurisdictions used in the application of specific anti-abuse regimes.

Tax Residence for Individuals

Pursuant to Article 2(2-bis) of the ITC, Italian citizens moving their tax residence to the countries included in the list of jurisdictions with a privileged tax regime contained in the Ministerial Decree of 4 May 1999 are considered, by rebuttable presumption, still resident in Italy, subject to all the tax obligations of resident persons.

Foreign-Sourced Dividends and Capital Gains

Article 47-bis of the ITC sets out the criteria for qualifying a foreign company as a resident of a privileged tax jurisdiction. In particular:

• foreign-controlled entities are considered to benefit from a privileged tax regime if they are subject to an effective tax rate 50% lower than the one applicable had the entity been resident in Italy. A simplified test, requiring the assessment of an effective taxation lower than 15%, could apply in case the financial statements of the controlled entities are certified by professional subjects and those certifications are used by the auditors of the controlling company to certify its own financial statements; or
• foreign non-controlled entities are considered to benefit from a privileged tax regime if the nominal tax rate is 50% lower than the one applicable in Italy.

In any case, entities that are resident in EU/EEA States cannot be considered as benefitting from a privileged tax regime.

The provisions of Article 47-bis of the ITC affect, in particular, the Italian tax regime applicable to dividends distributed by and capital gains realised from the sale of participation in entities benefitting from a privileged tax regime. In such a case, both dividends and capital gains are included in the taxable basis and taxed at a 24% rate, rather than benefiting from dividend/participation exemption regimes.

Controlled Foreign Company

Foreign-controlled entities are subject to the CFC legislation if:

• are considered as benefiting from a privileged tax regime according to the criteria of Article 47-bis of the ITC;
• more than 1/3 of their income consists of passive income (ie, interest, dividends, royalties, capital gains, income from financial leasing, insurance, banking and other financial activities, sale of goods and provision of low-value services to related parties).

In case CFC legislation applies, income generated by the foreign-controlled entities is attributed to the Italian controlling entity/individual in proportion to its share in the profits and taxed at its average tax rate (in any case, not lower than 24%).

Black-List Costs

Article 110(9-bis – 9-quinquies) of the ITC provides that costs and expenses arising from transactions, effectively executed, with entities and professionals located in jurisdictions non-cooperative for tax purposes can be deducted up to their market value. The amount exceeding the market value may be deductible, provided the taxpayer can prove it has an actual economic interest in the transactions.

Countries and territories considered as non-cooperative for tax purposes are those jurisdictions listed in Annex I to the EU list of non-cooperative jurisdictions for tax purposes, adopted by conclusions of the EU Council.

The Italian tax law imposes specific reporting obligations to prevent tax fraud and evasion on both taxpayers and financial intermediaries.

RW Form

Pursuant to Article 4 of Legislative Decree No 167/1990, individuals, non-commercial entities and non-commercial partnerships resident in Italy for tax purposes must report, in the RW Form of their income tax return, real estate assets and rights and financial assets and investments held abroad during the relevant tax period that may give rise to taxable income in Italy.

Under certain conditions, the reporting obligation also applies to Italian residents who are “beneficial owners” of assets and rights held abroad, even if formally owned by other persons (eg, trusts, foundations and similar arrangements).

Assets to be reported include:

• participations in non-Italian entities;
• units of non-Italian funds;
• foreign currencies;
• crypto-assets;
• deposits and bank accounts;
• financial and derivative contracts with non-Italian counterparties (eg, loans, repo agreements);
• insurance policies with non-Italian insurance companies;
• stock options issued by non-Italian companies;
• yachts and other vehicles subject to registration in foreign public registers; and
• valuables and works of art held outside Italy.

Tax Monitoring of Financial Intermediaries

Under Article 1 of Legislative Decree No 167/1990, banks, financial intermediaries and other financial operators must report to the Italian Revenue Agency any transfers of money to and from abroad with a value of at least EUR5,000. This reporting obligation also applies to transactions involving crypto assets.

DAC6 Directive

Italy has implemented Directive (EU) 2018/822 (DAC6) through Legislative Decree No 100/2020.

DAC 6 Directive provides for the automatic exchange of information on certain cross-border arrangements within the European Union and between Member States and third countries.

The obligation to report relevant cross-border arrangements to the Italian Revenue Agency lies on the intermediaries that design or promote a reportable arrangement and, ultimately, on the relevant taxpayers.

Both the Italian Revenue Agency and the Italian Tax Police (“Guardia di Finanza”) (jointly, the Italian Tax Authorities) are competent to perform control and assessment activities to verify the correct fulfilment of tax obligations. However, the Italian Revenue Agency is the sole body competent to issue final assessment and payment notices.

Generally speaking, Italian Tax Authorities carry out control activities on the tax returns filed, first through computerised procedures and documentary checks (“formal audits”), then through full audits.

Formal audits are mainly aimed at assessing the correctness of tax returns and are carried out through:

• computerised procedures targeted to assess that data reported and taxes calculated in the tax returns are consistent with the data directly present in the tax returns themselves, as well as with those held in the database of the Italian Tax Authorities;
• documentation and information requests to the taxpayers on the data reported on the tax returns.

Full audits consist of a deeper scrutiny of the correct fulfilment of taxpayers’ general tax obligations. Italian Tax Authorities can carry out substantive audits through different means:

• documentation and information requests to the taxpayers;
• access and inspections, upon specific authorisation by the competent bodies, at the taxpayers’ premises (ie, home or premises used to perform economic activities);
• documentation and information requests to other bodies (eg, banks, which cannot oppose bank secrecy) or third parties (eg, notaries).

Moreover, more intrusive actions, which are generally permitted in the context of criminal investigations, such as searches and seizures, may be performed only under the authority of the public prosecutor.

Taxpayers’ specific rights and guarantees during tax audits are mainly set out in Law No 212/2000.

Administrative penalties, applicable to violations concerning both pure domestic and cross-border cases, are regulated by Legislative Decree No 471/1997 and are applied and enforced by the Italian Revenue Agency.

With specific regard to the violation of the obligation on resident individuals, non-commercial entities and partnerships to report the holding of real estate assets and rights and foreign financial assets and investments (see 5.4 Reporting Obligations and Disclosure Regimes), a specific administrative penalty ranging from 3% to 15% of the non-reported value applies (see Article 5 of Legislative Decree No 167/1990).

The penalty is doubled if the assets and investments are held in countries included in the list of jurisdictions with a privileged tax regime set out in the Ministerial Decree of 4 May 1999. Moreover, in such a latter case, pursuant to Article 12(2 – 2-bis) of Legislative Decree No 78/2009, two further consequences are triggered:

• the sums deposited in the non-reported foreign accounts are considered, by rebuttable presumption, as constituted by non-taxed income and should, therefore, be subjected to taxation; and
• the ordinary statute of limitation is doubled.

Specific penalty protection is provided for violations of transfer pricing adjustments and anti-hybrid rules, provided that taxpayers submit to the Italian Tax Authorities the specific documentation, prepared in line with the applicable regulations, apt to illustrate the application of the relevant provisions.

In general terms, Italian tax criminal law seeks to prosecute offences that cause significant harm to the Treasury; therefore, in order to limit prosecution to violations with greater economic impacts, it is usually provided that tax violations trigger criminal liability only if the specifically determined statutory thresholds are exceeded.

Criminal tax offences are set out in Legislative Decree No 74/2000, with some of the major ones outlined below.

• The main tax offence aimed at punishing fraud is the fraudulent tax return, which may be committed by using invoices or other documents relating to sham transactions (Article 2) or by other fraudulent means (Article 3).
• Although not constituting fraud in the strict sense, specific conduct resulting in tax evasion may nevertheless trigger criminal liability, such as incorrect tax returns (Article 4) and failure to file a tax return (Article 5).
• Other offences are aimed at punishing conduct that facilitates or leads to tax evasion, such as the issuance of invoices for sham transactions (Article 8) and the concealment or destruction of accounting records (Article 10).
• Further offences punish the non-payment of taxes, including the failure to pay certified withholding taxes (Article 10-bis), VAT (Article 10-ter) and the improper offsetting of taxes (Article 10-quater).
• Finally, Article 11 punishes fraudulent acts committed by taxpayers with the purpose of subtracting their assets from the compulsory tax collection procedures carried out by the Italian Tax Authorities.

When, in the course of a tax audit, facts emerge that may constitute a tax offence, the Italian Tax Authorities are obliged to promptly report the alleged criminal offence to the Public Prosecutor, pursuant to Articles 331 and 347 of the Italian Code of Criminal Procedure.

Similarly, under Article 129(3-quarter) of the implementing provisions of the Italian Code of Criminal Procedure, when the public prosecutor initiates a criminal proceeding for tax offences, they must inform the Italian Tax Authorities of the charges.

As a general rule, tax and criminal proceedings are formally autonomous and independent (see Article 20 of Legislative Decree No 74/2000). Nevertheless, evidence collected in one proceeding can be brought in the other; in particular, evidence collected during criminal investigations may be transmitted to the Tax Authorities subject to the authorisation of the public prosecutor (see Article 63 of Presidential Decree No 633/1972 and Article 33 of Presidential Decree No 600/1973), while sources of evidence acquired during tax administrative proceedings can be lawfully acquired to the criminal proceeding only if the Italian Tax Authorities have complied with the procedural safeguards laid down in the Italian Code of Criminal Procedure in collecting them (see Article 220 of the implementing provisions of the Italian Code of Criminal Procedure).

Italy is a party to several legal instruments that foster administrative cooperation in tax matters.

Bilateral Conventions

The DTCs concluded by Italy, which are mainly drafted according to the OECD Model, contain a provision similar to Article 26 of the OECD Model, specifically allowing spontaneous and on-request exchange of information between contracting States.

In addition, Italy has concluded eleven Tax Information Exchange Agreements (“TIEA”) (with Andorra, Bermuda, Cayman Islands, Cook Islands, Guernsey, Gibraltar, Isle of Man, Jersey, Liechtenstein, Monaco and Turkmenistan), based on the OECD TIEA Model, providing for mechanisms for the exchange of information on request.

Multilateral Competent Authority Agreements (“MCAA”)

Italy is a party, inter alia, to the following MCAAs:

• for the automatic exchange of information on financial accounts (CRS);
• for the automatic exchange of Country-by-Country Reportings (CbCRs);
• for the automatic exchange of GloBE information.

OECD-Council of Europe Multilateral Convention on Mutual Administrative Assistance (“MAAT”)

Italy is also a party to the MAAT, which contains provisions on the exchange of information, simultaneous tax examinations, tax examinations abroad, assistance in the recovery of tax claims and assistance in the service of documents.

EU Directives on Administrative Cooperation (“DAC”)

Italy has implemented all the so-called DACs, allowing the automatic exchange of information with EU Member States and third countries on the following topics:

• employed income, pensions, directors’ fees, license fees, income from real estate and life insurance products (DAC 1);
• banking information (DAC 2);
• advance tax rulings and transfer pricing rulings (DAC 3);
• country-by-country reporting (DAC 4);
• cross-border arrangements (DAC 6);
• digital platforms operations (DAC 7); and
• crypto-assets (DAC 8).

See 8.1 Availability and Legal Basis.

Italy has been a party to the OECD ICAP since 2018. However, no ICAP case has been addressed.

Italy has also concluded, pursuant to Article 26 of the OECD Model, 12 Working Arrangements to conduct simultaneous tax examinations (with Australia, Austria, Belgium, Denmark, Finland, France, Hungary, Norway, Poland, Slovakia, Sweden and the United States).

Italy has implemented both the OECD-based MAP programme (“Treaty MAPs”) and the European ones (“EU MAP”).

Treaty MAPs are specifically regulated by the relevant provision of the applicable DTC (generally Article 25).

EU MAPs are governed by two main legal instruments. The first is the Convention on the Elimination of Double Taxation in Connection with the Adjustment of Profits of Associated Enterprises (90/436/EEC, known as the “Arbitration Convention”), which applies exclusively to double taxation arising from transfer pricing adjustments. The second is Directive (EU) 1852/2017 on Tax Dispute Resolution Mechanisms in the European Union, implemented in Italy by Legislative Decree No 49/2020. This Directive covers both transfer pricing adjustments and other issues connected with the interpretation and application of the relevant DTCs.

The deadline for submitting a MAP request is specifically set out in the legal instrument on the basis of which the procedure is activated.

For Treaty MAPs, the term usually included in the Italian DTCs is two years, which is shorter than the three-year term set out in the OECD Model. For EU MAPs, the term is also three years.

The term generally runs from the first notification of the measure that results in (or is capable of resulting in) double taxation. Such a moment corresponds to:

• the date of the explicit or implicit denial of the refund request by the Italian Revenue Agency, in case double taxation originates from the application of a domestic tax or withholding tax; and
• the notification of the tax assessment notice, in case of adjustments made by the Italian Revenue Agency following a tax assessment.

In the latter case, according to the clarifications released by the Italian Revenue Agency (Circular Letter No 21/2012), taxpayers may also activate MAP even before the formal notification of a tax assessment notice; for example, following the notification of a final tax audit report (“processo verbale di constatazione” or “PVC”).

Generally, Italian DTCs do not contain an arbitration clause. Only specific conventions include an arbitration provision (ie, those with Armenia, Canada, Chile, Colombia, Croatia, Georgia, Ghana, Hong Kong, Jamaica, Jordan, Kazakhstan, Lebanon, Moldova, Slovenia, Uganda, United States, Uruguay and Uzbekistan), which however could not be considered as mandatory, generally requiring the consent of both States and of the taxpayers for the start of the arbitration.

Mandatory binding arbitration is provided for EU MAPs under both the Arbitration Convention and Directive (EU) 2017/1852.

9.1 Advance Pricing Agreements

In accordance with the OECD TP Guidelines, Italy introduced an APA programme in 2003 for the advance determination of transfer pricing over a specified period.

The APA programme allows the conclusion of both unilateral and bilateral (or multilateral) APA. The procedure for concluding APAs is governed by Article 31-ter of the Presidential Decree No 600/1973, as implemented by the provisions of the Regulations of the Director of the Italian Revenue Agency No 42295/2016 and No 297428/2021.

In addition to the advance determination of transfer prices, enterprises with an international activity may also conclude agreements with the Italian Revenue Agency on the basis of Article 31-ter of the Presidential Decree No 600/1973, in order to obtain the advance:

• definition of the entry or exit value of assets in case of transfer of residence;
• assessment of the conditions for the existence of a PE in Italy of a non-resident company;
• definition of the attribution of profits/losses to an Italian PE of a non-resident company or to a PE in another State of a resident company;
• assessment of the tax treatment of income (ie, dividends, interest, royalties and other income) paid to/received from non-resident companies.

The Italian tax system offers a wide range of instruments to obtain advance certainty regarding the application of specific tax provisions or tax regimes. Those instruments are available to all taxpayers (whether Italian or foreign residents) for both purely domestic and cross-border matters.

Ordinary Tax Rulings

The ordinary tax ruling programme provides, in relation to actual cases, certainty on:

• interpretation of the tax law (“interpretative ruling”);
• qualification of specific cases in relation to the applicable tax provisions (“qualification ruling”);
• whether a specific transaction could be considered abusive (see 6.2 Criminal Penalties) (“anti-abuse ruling”);
• disapplication of specific anti-avoidance rules (“disapplication ruling”);
• existence of the conditions required by the law for the application of specific tax regimes (“probatory ruling”);
• existence of the conditions required by the law for the application of the flat tax regime for new resident individuals (Article 24-bis of the ITC).

A probatory ruling can be requested only by taxpayers under the cooperative compliance regime or by those who have already applied for the new investments ruling.

Since 2024, filing a ruling request has, in principle, been subject to a fee. As of today, absent any implementing rules, no fee is required.

Depending on the domicile, nature and size of the applicant taxpayer, the ruling request is processed by either the central bodies or by the competent Regional Directorate of the Italian Revenue Agency.

An answer to the ruling request must be provided within 90 days, with the possibility of extending the term by a further 60 days in the event of a request for additional information or documentation. If the Italian Revenue Agency does not answer within the prescribed term, the ruling request is considered confirmed.

The ruling binds both the Italian Tax Authorities and the specific taxpayers(s), provided the relevant laws, facts and circumstances remain as represented.

“New Investments” Ruling

Taxpayers can apply for the new investments ruling in relation to intended new investments that have the following characteristics:

• be realised in the Italian territory;
• have a value of at least EUR15 million;
• have a beneficial and long-lasting impact on employment and tax revenues.

The new investment ruling provides advanced certainty on the tax regime applicable to the overall investment, covering both matters normally covered by ordinary tax rulings and more factual issues (eg, existence of a PE in Italy).

The answer to the new investments ruling request must be provided within 120 days, with the possibility of extending the term by a further 90 days in the event of a request for additional information or documentation.

The ruling binds both the Italian Tax Authorities and the specific taxpayers(s) with respect to the specific business plan described in the ruling request, provided the relevant laws, facts and circumstances represented remain as stated.

Taxpayers who invest in accordance with a new investment ruling have facilitated access, regardless of their turnover, to the cooperative compliance regime.

Cooperative Compliance Programme

In 2015, Italy has implemented a cooperative compliance regime, in line with the OECD standards, allowing groups and companies, with turnover/revenues of at least EUR500 million (EUR100 million from 2028), to establish an ongoing dialogue with the competent offices of the Italian Revenue Agency, aimed at providing taxpayers with facilitated instruments to obtain certainty on possible issues related to the interpretation and application of tax provisions as well as eligibility for specific tax regimes.

The most relevant facilitations consist of:

• reduced term for obtaining an advance answer from the Italian Revenue Agency to ruling requests (45 days, instead of the ordinary 90 days); and
• at certain conditions, no/reduced penalties in case of challenges by the Italian Revenue Agency;
• under certain conditions, no criminal liability for the offence of incorrect tax return; and
• reduced statute of limitation for tax audits (three years, instead of the ordinary five years).

Taxpayers adhering to the cooperative compliance regime must have an effective integrated system for identifying, measuring, managing and controlling tax risks, including those arising from the application of accounting principles (“Tax Control Framework” or “TCF”).