The Italian tax deducted from dividends at the agreement rate of 15 per cent (or 5 per cent where the recipient of the dividend is a United Kingdom resident company controlling directly at least 51 per cent of the voting power in the Italian company paying the dividend under the old agreement, or directly or indirectly at least 10 per cent of the voting power in the Italian company paying the dividend under the new agreement) qualifies for credit as a direct tax (see INTM164010).
Where dividends are paid to a company resident in the United Kingdom which holds at least 25% of the capital of the company paying the dividend the EC parent/Subsidiary Directive means that no withholding tax can be deducted. The level of control required to gain exemption is 20 per cent from 1 January 2005, 15% from 1 January 2007 and 10% from 1 January 2009. The reduction in rates is given only if the recipient is the beneficial owner of the dividends. But, if the shareholder carries on business in Italy through a permanent establishment or performs independent personal services from a fixed base in Italy and the holding is effectively connected with the permanent establishment or fixed base, the dividends remain taxable according to Italian domestic law.
Where the recipient of the dividend is a United Kingdom company controlling, directly or indirectly, at least 10 per cent. of the voting power in the Italian company paying the dividend, credit may also be given for the underlying tax (see INTM164010 and Article 24(2)(b) of the agreement).