Clarity has been brought to the matter by the Tax Court of Second Instance of Emilia-Romagna, which ruled on an appeal against an assessment notice issued to a Modena-based limited liability company (S.r.l.) defended by lawyer and chartered accountant Daniele Giacalone.
The case — valued at over €116,000 including principal, interest, and penalties — originated from a tax audit conducted by the Modena Provincial Directorate of the Italian Revenue Agency, which claimed that the company was subject to Article 25, paragraph 4, of Presidential Decree No. 600/1973. This provision imposes a 30% withholding tax on profits earned in Italy by non-resident economic operators.
The Court, composed of President Pasquale Liccardo, Judge Rapporteur Alessandro Rizzieri, and Judge Carmen Giraldi, resolved the complex issue concerning substitute taxes payable on royalties received by foreign beneficiaries.
The case involved an Italian company affiliated with a well-known American fast-food brand. The company had paid royalties to the franchisor’s European subsidiary, which manages the brand across Europe, rather than directly to the U.S.-based holding company. The Modena firm had applied a 5% substitute tax pursuant to the Italy–Switzerland Double Taxation Treaty, which prevents double taxation on such payments.
However, the Revenue Agency contested this position, arguing that the royalties should have been paid to the “real” franchisor — the U.S. holding company — and thus subject to the 30% withholding tax under Article 25(4) of Presidential Decree No. 600/1973. According to the Agency, the Italian company was responsible for withholding and paying this tax as a substitute taxpayer.
The tax authorities therefore demanded that the withholding tax be calculated not under the Italy–Switzerland treaty (which sets a 5% rate for royalties), but under domestic Italian law, claiming that the royalties were effectively due to the U.S. entity. This interpretation resulted in a much higher tax claim. The Agency also asserted that the burden of proof rested on the taxpayer.
The defense, representing a leading restaurant company in the Modena area, successfully demonstrated — both at first instance and on appeal — that the Revenue Agency’s assessment of over €116,000 was null and void. The defense argued that the burden of proof lies with the tax authority, not the taxpayer. Crucially, they emphasized the concept of the beneficial owner of the royalties, showing that the Swiss subsidiary was not merely a conduit, but an operational entity holding exclusive rights to the brand across Europe. Consequently, the 5% rate under the Italy–Switzerland tax treaty should apply, as it prevents double taxation.
The defense team — Dr. Daniele Giacalone and Dr. Antonio Campofiorito — expressed satisfaction with the ruling:
“The issues raised by this case,” explained the two professionals, “shed light on the complex topic of the taxation of royalties paid by Italian companies to foreign beneficiaries — an area often unclear, in which we believe this ruling will serve as a valuable precedent for all franchisees affiliated with international brands facing similar tax challenges.”
The full article can be read in Il diritto di contare, the daily publication of the Order of Chartered Accountants and Accounting Experts of Palermo, at the following link:
The news was also featured in Il Sole 24 Ore, Norme e Tributi section, on Monday, November 6, 2023.
