For the eligibility of such exemption, the Article 15 of the Agreement provides that the following requirements must be met jointly:
- the parent company must directly hold at least 25% of the capital of the subsidiary;
- the shareholding must have been held for at least two years;
- one of the two companies must be resident for tax purposes in a European Union Member State and the other must be resident for tax purposes in Switzerland;
- neither company is resident for tax purposes in a third State on the basis of a double taxation agreement with that third State;
- both companies are subject to corporation tax without being exempted;
- both companies adopt the form of a limited company.
In the Ruling in question, the Italian company based its request to the Italian Revenue Agency on the fact that, following the entry into force of the Federal Act of 28 September 2018 (concerning the tax reform and financing of the OASI – oad age and survivors’ insurance), the special tax regime for holding companies in Switzerland was repealed as of 1 January 2020. In particular, the provision in Article 28(2) of the Federal Act on the Harmonisation of Direct Taxes of the Cantons and Municipalities of 14 December 1990, which provided that corporations and cooperative societies whose statutory purpose consists essentially in the lasting administration of participations and which do not engage in any commercial activity in Switzerland, do not pay tax on net income, if in the long term the participations or the income of the same represent at least two thirds of the total assets or revenues, has been repealed.
Therefore, as of 1 January 2020, it is no longer in question whether Swiss companies holding participations in Italian subsidiaries will be subject to ordinary taxation of their profits at the federal, cantonal and communal level, without benefiting from the previous special tax regimes.
In support of its argument, the Italian company also referred to two previous rulings of the Italian Revenue Agency which, on the one hand (see Resolution No. 93 of 10 May 2007) clarified that Swiss companies wishing to benefit from the parent-subsidiary regime should not benefit – in application of legal provisions or even as a result of administrative rulings – from special tax regimes consisting in the exemption of income from one of the three levels of direct taxation (federal, cantonal and municipal); on the other hand (see Ruling No. 57 of 15 February 2019) a positive opinion had been given on the exemption of withholding taxes in relation to the distribution of dividends by an Italian subsidiary to a Swiss holding company which formally waived the tax benefits provided in the past by the Swiss tax system to holding companies.
In conclusion, as of January 1, 2020, following the abolition of the Swiss tax regime for holding companies, an Italian limited company distributing its dividends to its Swiss parent company, which is also a limited company and holds an interest of at least 25% for at least two years in the Italian company, will not apply any withholding tax on dividends (whether relating to profits of the last financial year or of previous years).
Moreover, it is worth mentioning that Switzerland also applies an ordinary regime of participation exemption (see Article 69 LIFD) which, similarly to the one provided for in Italy by Article 89 of the TUIR, in order to avoid international double taxation, almost totally exempts from taxation the dividends received by the Swiss company as a result of its participation (at least 10% or with normal value of 1mln CHF) in its subsidiaries.
