JANUARY, FEBRUARY AND MARCH 2026 - INTERNATIONAL TAX FOCUS

The Parliamentary question time no. 5-04807 addressed the issue of the different tax treatment applied to pensioners residing abroad based on the public or private nature of the pension received. It should be recalled that, when the tax treaty between Italy and the other States follows the OECD Model Convention, private pensions are taxable exclusively in the State of residence of the beneficiary (Art. 18). Conversely, for public pensions, when the treaty between Italy and the other State conforms to the OECD Model, taxation lies, as a general rule, exclusively with the paying State (Art. 19). In line with established case law on the matter (European Court of Justice joined Cases C-168/19 and C-169/19 and Italian Supreme Court Order no. 3343 of 23 February 2023), it was clarified that there are no technical grounds supporting the need to amend the treaty-based allocation criteria of taxing rights with respect to pensions received by public-sector employees.

Concept of Beneficial Ownership under the Parent-Subsidiary Directive

The Italian Supreme Court has addressed twice the issue of identifying the beneficial owner for the purposes of withholding tax exemption under the Parent-Subsidiary Directive. In both cases, the dispute concerned the failure to apply withholding tax on dividends paid by the Italian subsidiary to the intermediate Danish holding company, which was itself owned by a U.S. parent company. In the decision no. 32149 of 10 December 2025, the Italian Supreme Court noted that, in carrying out the so‑called substantive business activity test, the Court of second instance erred in excluding that the Danish company carried out genuine economic activity on the grounds of the “substantial absence” of an operational structure. The judges failed to take into account the specific features of a pure holding or sub‑holding company, which does not directly conduct commercial activities but merely manages shareholdings in other companies. In this way, the Italian Supreme Court appears to acknowledge that, in the context of dividend‑exemption provisions, beneficial ownership may still be recognised even where the entity has a lighter structure than what might be considered adequate for exemption in the parallel context of interest and royalty payments. In decision no. 32467 of 12 December 2025, however, the Italian Supreme Court denied beneficial‑owner status to the Danish sub‑holding, identifying the U.S. parent company as the actual beneficial owner. As a result, a 5% withholding tax applied pursuant to Article 10 of the Italy-U.S. Tax Treaty. The Danish company did not have material or legal availability of the dividends received from the Italian subsidiary, as the funds were pooled into a common cash account. Moreover, the Danish company did not carry out any real economic activity, not even that typical of a pure sub‑holding, and the effective management of the European business segment originated from the U.S. parent company.

Italy Suspends Tax Treaty Benefits with Russia and Belarus

Article 10 of Legislative Decree no. 192/2025 establishes that if a foreign jurisdiction unilaterally suspends the application of one or more provisions of a double tax treaty in force with Italy, the application of those same provisions is likewise suspended in the Italian legal system, as a countermeasure, with the same effective date. This issue directly concerns relations with the Russian Federation and Belarus, both of which have unilaterally suspended their respective tax treaties signed with Italy. As a result of the new rule, outbound income flows from Italy are subject to withholding tax at the full domestic rates, rather than at the reduced tax treaty rates.

Implementation and transposition of DAC 8 Directive

The Legislative Decree no. 194 of 10 December 2025, implementing Directive (EU) 2023/2226 (DAC 8) on the automatic exchange of data relating to crypto‑assets, has been published in the Italian Official Gazette. The new provisions entered into force on 1 January 2026, as from when information concerning holders of crypto‑assets within the European Union, as well as data relating to those assets, will be automatically exchanged among the tax authorities of the Member States.

The Legislative Decree also:

• extends the “traditional” categories of income (employment income, directors’ fees, etc.) from four to five for which Italy undertakes to transmit data on its residents to other Member States;

• broadens the range of cross‑border rulings that must be reported;

• introduces stricter requirements for collecting and reporting the TIN (tax identification number) of non‑resident taxpayers, to be phased in gradually between 2028 and 2030.

Italy joins the Multilateral Competent Authority Agreement on the Exchange of Readily Available Information on Immovable Property (IPI MCAA)

In a press release issued on 4 December 2025, Italy announced that it has joined the Multilateral Competent Authority Agreement on the Exchange of Readily Available Information on Immovable Property (IPI MCAA), a framework that will govern the automatic exchange of information on properties located abroad and on the related purchase and sale transactions.

The first 25 participating jurisdictions include:

• 14 EU Member States: Belgium, Finland, France, Germany, Greece, Ireland, Italy, Lithuania, Malta, Portugal, Romania, Slovenia, Spain and Sweden;

• 4 non‑EU States and territories within geographical Europe: Iceland, Norway, the United Kingdom and Gibraltar;

• 7 non‑European States: Brazil, Chile, Costa Rica, Korea, New Zealand, Peru and South Africa.

The IPI MCAA is structured into two modules:

• the first covers information on immovable property held, sold, or purchased by non‑residents;

• the second concerns information on “recurring income” generated by the property (e.g., rental income).

The new measures are expected to become fully effective in 2029 or 2030.

Remote Working – Implications for Income Sourcing, Corporate Residence, Permanent Establishments, and Transfer Pricingscope

The OECD document “Global Mobility of Individuals”, which analyses a series of issues relating to worker mobility that may have consequences for the application of various treaty provisions, was open for public consultation until 22 December 2025. With regard to the position of employees, the main issues concern: • the individual’s tax residence; • the territoriality of the income generated; • the possible divergent qualification of the income (as employment income or self‑employment income) in the jurisdictions involved;

• the interaction with national incentive regimes aimed at attracting highly skilled workers or digital nomads.

With regard to the employer’s position, the issues examined include: • whether a remote worker could create a permanent establishment (physical, agency, or service PE) in the other State;

• the company’s tax residence, particularly in situations where the board of directors and/or shareholders’ meetings are held remotely;

• transfer pricing implications.

New clarification on the in-bound workers regime

The Italian Tax Authorities has issued some clarifications on the in-bound workers regime. With ruling no. 2 of 12 January 2026, the Italian Tax Authorities confirmed that an individual who returns to Italy to work from home for a foreign employer can benefit from the regime provided that, in the relevant fiscal year, the job activity is mainly performed in Italy. According to the subsequent ruling no. 12 of 20 January 2026, the former frontier worker who, after working from abroad for an Italian company, acquires his/her tax residence in Italy while continuing to work for the same Italian company, can benefit from the regime

Social security amounts paid abroad are deductible from the overall income

On With ruling no. 5 of 15 January 2026, the Italian Tax Authorities confirmed that, for individuals who are resident in Italy while working abroad and whose employment income is subject to taxation in Italy under the conventional wages regime, social security amounts paid in the foreign State in are not deductible from the employment income but from the overall income. The answer is in line with what the Italian Supreme Court maintained in its decision no. 17747 of 27 June 2024.

Indemnities in lieu of notice are taxable in the work State under tax treaty law

According to ruling no. 1 of 12 January 2026, the indemnity in lieu of notice paid by an Italian company to a nonresident individual is also taxable in Italy (with the consequent obligation for the company to act as a withholding agent) to the extent that it refers to work physically performed in Italy. This is because:

• the indemnity is considered to be derived from Italy pursuant to Art. 23(1)a) of the TUIR, as it is paid by a person resident in Italy for tax purposes;

• it falls within the scope of Art. 15 of the OECD Model Convention (whose letter is faithfully replicated by the tax treaty between Italy and Finland, the residence State of the recipient), which grants the work State the right to tax income deriving from the employment activities carried out therein, including forms of deferred remuneration.

Shares assigned to an Italian tax resident are always taxable therein

According to ruling no. 8 of 16 January 2026, where shares are assigned to a beneficiary who is resident for tax purposes in Italy at the time of assignment:

• the beneficiary is required to subject to taxation in Italy (State of residence at the time of assignment) the entire value of the shares received, even if they refer to the work carried out abroad at the time when he was also resident abroad;

• the double taxation that arises as a result of the potential taxation in any other State on the same income is mitigated with the credit that Italy is required to recognize pursuant to Art. 165 of the TUIR.

This statement of practice is in line with the position held with ruling no. 199 of 4 August 2025.

Individuals working on foreign ships for more than half of a fiscal year are not taxable in Italy

Ruling no. 10 of 20 January 2026 states that income derived from the work activities carried out by seafarers of Italian nationality on ships flying a foreign flag is not subject to taxation in Italy if the activity is carried out on such ships for a period exceeding 183 days over a 12-month period. For the purposes of this exemption, it is necessary to assess if the time threshold above is met, also by taking into account the existence of one or more employment contracts that can have a duration straddling several calendar years which, analysed together, ensure that the worker stays abroad for more than 183 days per fiscal year.

The Italian Supreme Court rules again on beneficial ownership

The Italian Supreme Court issued two decisions concerning the tax regime of interest and royalties paid to non-residents. Decision no. 1635 of 25 January 2026 confirmed that the beneficial owner status for the purposes of applying the 5% withholding tax provided for by the Italy-Germany tax treaty on royalties paid by an Italian company to its German subsidiary needs to be ascertained by applying a threestep test:

• the “substantive business activity test”, aimed at verifying that the receiving company carries out an effective economic activity and does not represent an artificial arrangement;

• the “dominion test”, which assesses the company’s ability to freely dispose of the income received, without being obliged to remit the income to a third party;

• the “business purpose test”, which verifies the economic reasons for the interposition of the receiving company in the income flow.

With decision no. 1849 of 27 January 2026, on the other hand, the Italian Supreme Court stated that the reimbursement of the withholding tax on interest paid by an Italian company to its Swedish parent company, due under the Interest&Royalty Directive, also applies in the event that the withholding tax has been paid to the Italian Treasury by the subsidiary but subsequently reimbursed to the latter by the Swedish parent company following an internal agreement.

Foreign tax credit should be granted even if not correctly reported in the tax return

According to the Italian Supreme Court decision no. 1651 25 January 2026, the foreign tax credit is to be granted if a company has not reported the relevant foreign income in its tax return for the purpose of transferring such credit to the tax unit and, similarly, has omitted to indicate in the same return the tax surpluses that gave rise to the credit.

According to the Supreme Court:

• the wording of Art. 165 of the TUIR does not sanction reporting errors with the loss of the right to offset the foreign tax credit;

• even if so, this would be superseded by the applicable tax treaty, which does not provide for constraints related to reporting obligations;

• the request for reimbursement of the credit submitted to the Italian Tax Authorities should present them with all the elements to assess whether the credit exist and its amount.

Foreign governmental bodies exemption from the inheritance and gift tax

The Italian Tax Authorities’ ruling no. 16 of 22 January 2026 clarified that the exemption from inheritance and gift tax for transfers in favour of the State, Regions, Provinces and Municipalities, cannot be applied with respect to the shares in a company based in Italy received by a Swiss public body in the Canton of Ticino. In this case, in fact, the “reciprocity requirement” provided for by the law is not met.

Clarifications on the new 2 Euros contribution due on lowvalue shipments

With its Circular Letter no. 1 of 7 January 2026, Customs and Monopolies Agency have provided for new clarification regarding the transitional period of application of the 2 Euros contribution on shipments of modest value from nonEU countries. In particular, periodic accounting registrations and payments can be used both for transactions declared in simplified form (H7) and for those in ordinary form (H1). The contributions on the shipments due for imports made from 1 January 2026 to 28 February 2026 will be accounted for and paid on the basis of the declaration drawn up according to the form attached to the previous Circular Letter 37/2025, to be submitted by 15 March 2026

The Italian Supreme Court describes the VAT exemption on brokerage insurance requirements

The Italian Supreme Court, with its decision no. 1425 of 23 January 2026, identified the requirements that need to be met for the VAT exemption regime for brokerage activities in the insurance sector to apply. The exemption applies if the service provider is in a direct or indirect relationship (where the provider is a subcontractor of the broker or intermediary) with the insurer and the insured and if the services provided are typical of an insurance intermediary activity (such as finding and connecting potential customers with the insurer and assisting in postconclusion of the service including policy renewals). The services described differ from those of a consultancy nature, for which the ordinary VAT taxation regime would apply.

New Protocol between Italy and Switzerland on frontier workers about to enter into force

Law no. 217 of 29 December 2025, concerning the ratification of the Protocol amending the Italy-Switzerland Agreement of 23 December 2020 relating to the taxation of frontier workers, was published in the Italian Official Gazette on 19 January 2026. The Protocol will enter into force once the exchange of instruments of ratification between the two States will be completed. The text of the Protocol contains a provision that allows frontier workers to carry out up to 25% of their activity in remote working without losing their cross-border status.

The Side-by-Side Package on Pillar Two has been issued by the OECD

The “Side-by-Side Package”, published by the OECD/G20 Inclusive Framework on 5 January 2026, redefines the interpretative guidelines necessary for the coordinated operation of the Global minimum tax. The most significant element of the package is represented by the so-called Side-by-Side System, which aims at eliminating the potential Pillar Two top-up taxes (whether calculated with the IIR or UTPR mechanisms) when the group’s UPE is located in a jurisdiction with a “Qualified Side-by-Side Regime”. Currently the United States of America have been recognized as having such a regime

Tax benefits for teachers and researchers returning to Italy

The statement of practice no. 8 issued by the Italian Tax Authorities on 23 February 2026 provides important clarifications on the fiscal incentives for individuals returning to Italy, with a dedicated section on the special tax regime for teachers and researchers coming from abroad. Under Article 44 of the Law Decree 78/2010, teachers and researchers who transfer their tax residence to Italy may benefit from a 90% exemption on employment or self‑employment income derived from teaching or research performed in Italy.

The statement of practice confirms that:

• a taxpayer who returns to Italy without minor children and benefits from the regime for the ordinary six‑year period may extend the eligibility period to eight, eleven, or thirteen years if, within the first six years, he/she has one, two, or three children, respectively;

• a taxpayer who returns to Italy with one child, or who has a child within the first six years, may extend the benefit period to eleven years if a second child is born by the end of the eighth year;

• the same taxpayer may extend the regime to a total of thirteen years if a third child is born by the end of the eleventh year.

Clarification on how EoR links extend in-bound workers requirements

The Italian Tax Authorities’ ruling no. 54 issued on 27 February 2026 provides important clarifications on the tax incentive regime for inbound workers regime introduced under Legislative Decree no. 209/2023. The ruling addresses how to determine the required minimum period of foreign residence (three vs. six or seven years) when the worker returning to Italy is employed through an Employer of Record (EoR) belonging to the same corporate group as the foreign EoR. If a worker returns to Italy continuing to operate through an EoR that belongs to the same group as the EoR used abroad, this continuity is considered relevant for the purposes of applying the extended minimum foreign‑residence requirement.

As a result, the ordinary requirement of three years of foreign residence does not apply. Instead, the Tax Authority held that, due to the continuity at the level of the formal employer (EoR), the worker must satisfy the “strengthened” requirement, meaning:

• six years of foreign residence; or

• seven years, where the worker also had previous employment in Italy with the same employer or group.

Taxation of accessory or deferred compensation under the conventional wages regime

With ruling no. 37 of 12 February 2026, the Italian Tax Authorities confirm that, when an employee is taxed in Italy under the conventional wages regime for work performed abroad, any additional remuneration (fringe benefits, stock options, performance shares, bonuses, allowances, etc.) is absorbed into the conventional amount and is not subject to separate taxation, provided the compensation relates to the same foreign work activity covered by that regime. The ruling reiterates existing guidance (e.g., Circular Letter 11/E/2013 and previous rulings) stating that, once conventional remuneration applies, no analytical taxation of accessory or deferred compensation is permitted; the conventional base fully replaces the ordinary calculation of taxable income for the relevant periods.

Tax treatment of San Marino pensions for former frontier workers

The parliamentary question time reply no. 5‑04972 of 3 February 2026 addressed the issue of conflicting tax qualifications regarding pensions paid under the San Marino social security system to former Italian frontier workers. The issue stems from several interpretative circulars issued in San Marino concerning the application of Article 18 of the ItalySan Marino tax treaty. According to these interpretations, pensions paid by the San Marino Social Security Institute (ISS, equivalent to the Italian INPS) to residents of Italy should be taxed exclusively in San Marino, as the State of source (under Art. 18(3) of the above-mentioned treaty). Italy, however, does not classify these pensions as “social security pensions” under its domestic rules. As a result, the general rule would apply, and pensions paid to individuals who have become Italian tax residents should be taxed only in Italy (Art. 18(1)). One of the potential solutions mentioned is the possibility of amending the bilateral tax treaty through a Protocol. Such an amendment could resolve the conflict by allowing shared (concurrent) taxation of these pensions in both jurisdictions.

Court ruling on cross‑border pension taxation

With its decision no. 4314 of 26 February 2026, the Italian Supreme Court held that Italian pensions paid to individuals residing in Portugal following the termination of private employment are subject to exclusive taxation in Portugal, pursuant to Art. 18 of the Italy–Portugal tax treaty. For this purpose, it is irrelevant whether the pension income is subject to reduced taxation or even exempt in Portugal (as occurred in the years under dispute, due to incentives then available under Portuguese law). The treaty rule in Art. 18 alone is sufficient to exclude Italy’s taxing rights over such pensions.

Securities brokerage firms are not required to report for FATCA/CRS purposes

In ruling no. 43 of 20 February 2026, the Italian Tax Authorities clarified that securities brokerage firms (“Società di Intermediazione Mobiliare” or SIMs) which exclusively provide investment advisory services (i.e., personalised recommendations relating to assets held with authorised third‑party intermediaries) are not subject to FATCA or CRS reporting obligations. These reporting obligations apply to depositary institutions, custodial institutions, insurance companies, and investment entities. The latter are required to report when they conduct investment activities on behalf of clients, or when they are managed by a depositary institution, custodial institution, insurance company, or another investment entity and their gross income derives primarily from investing, reinvesting, or trading in financial assets or crypto‑assets. Since none of these conditions are met in the case of SIMs that solely provide investment advice, FATCA and CRS reporting is not required.

Annual Pillar 2 tax return form published by the Italian Tax Authorities

The Italian Tax Authorities’ Ordinance no. 46523 of 6 February 2026 approved the annual tax return form relating to the Pillar Two top-up taxes, including the components of the Income Inclusion Rule (IIR), the Undertaxed Profits Rule (UTPR), and the Qualified Domestic Minimum Top-up Tax (QDMTT) referred to in Art. 53 of Legislative Decree 209/2023, together with the related instructions. The form consists of a cover page – containing the personal details of the taxpayer submitting the return and of the signatory representative – and the following sections:

• Section A – Group data and simplified or exclusion regimes

• Section B – Calculation of the top-up tax

• Section C – IIR

• Section D – UTPR

• Section E – QDMTT

• Section F – Tax payments

The form must be submitted electronically to the Italian Tax Authority within the fifteenth month following the last day of the financial year to which it refers (or within the eighteenth month for “transition year”, which in several cases is 2024). The first filing deadline, regardless of the start or duration of the financial year, may not fall before 30 June 2026.

Italian Supreme Court clarifies criteria for determining corporate tax residence

According to the Italian Supreme Court decision no. 3591 of 17 February 2026, when assessing the tax residence of companies, the evaluation of the connecting factors set out in Art. 73(3) of the TUIR (registered office, place of management, and main object of the activity, given that the case concerns fiscal years prior to 2024, before the criteria to establish Italian tax residence were amended) must be carried out regardless of whether the foreign‑law company is real or fictitious; for these purposes, the relevant inquiry is not whether the foreign entity is fictitious, but rather the determination of the actual place where the company’s administrative functions are performed. This includes identifying where management activities are effectively carried out, where directors reside and meet, and where strategic and operational business decisions are made.

Applying this criterion, the Court confirmed the Italian tax residence of a company incorporated under foreign law (which although genuine and not fictitious in its State of incorporation, being San Marino) was effectively managed and directed from Italy.

EU Council updates the list of non‑cooperative Tax Jurisdictions

At its meeting on 17 February 2026, the Council of the Euro¬pean Union updated the EU list of non‑cooperative tax juris¬dictions, adding the Turks and Caicos Islands and Vietnam, and removing Fiji, Samoa, and Trinidad and Tobago.

Following this update, the list now includes 10 jurisdictions: Anguilla, the Russian Federation, Guam, Turks and Caicos Islands, U.S. Virgin Islands, Palau, Panama, American Samoa, Vanuatu, and Vietnam.

The Turks and Caicos Islands were added because they facilitate the establishment of offshore structures lacking real economic substance.

Vietnam’s inclusion stems from deficiencies in the ex-change of tax information, despite its commitment to imple¬menting the recommended country‑by‑country reporting measures.

Under Italian law, this EU list is used to identify foreign counterparties to which the rules set out in Article 110(9‑bis) et seq. of the TUIR apply. According to these rules, costs arising from transactions with enterprises resident or located in such “non‑cooperative” jurisdictions, where they exceed arm’s‑length value, are deductible only to the extent of the ex¬cess if the taxpayer can demonstrate an actual economic interest.

Even where such costs are fully aligned with market value, they must nonetheless be separately disclosed in the Ital¬ian income tax return.

Update of OECD’s Manual on Effective Mutual Agreement Procedures

On 2 February 2026, the OECD released the updated Man¬ual on Effective Mutual Agreement Procedures (MEMAP), which provides practical guidance on how mutual agreement procedures (MAPs) under tax treaties should operate.

This new edition represents the first comprehensive revi¬sion since 2007 and reflects developments arising from the BEPS Action 14 minimum standard and more than a decade of practical experience.

The key topics addressed in the updated manual include:

• eligibility criteria for accessing MAP, with the aim of ensur¬ing consistent and treaty‑aligned access for taxpayers;

• procedures for submitting MAP requests, with specific emphasis on avoiding unnecessary administrative barriers;

• unilateral remedies, where available, that may be ap¬plied by jurisdictions as an alternative to bilateral negotiations.

The updated MEMAP also introduces best practices and provides detailed guidance on dispute prevention, competent authority organisation, and – new in this edition –MAP arbitration.

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JANUARY, FEBRUARY AND MARCH 2026 – INTERNATIONAL TAX FOCUS

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