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Italian Supreme Court (Corte di Cassazione) rendered three decisions (29635-30140-30347) in 2019 concerning Italy / Germany Tax Treaty.

In all these decisions Supreme Court stated that Tax Treaty provisions have to prevail on domestic provisions (which provides a 95% exemption for dividends instead of the full exemption provided in the Tax Treaty currently in force).

All three cases concerned an Italian Holding company receiving dividends from its German Subsidiary and the Italian tax authorities took the view that the parent company (tax resident in Italy) was not entitled to a full dividend exemption since such a dividend was not subject to a Withholding tax at source in Germany.

The Italian Supreme Court rejected the tax assessment stating that condition provided in the Tax Treaty (full exemption) is always applicable even if dividends were not subject to tax in Germany.

In substance, this is the opinion of the Supreme Court, Tax Treaty rules prevails both on the domestic law and parent-subsidiary directive if these Treaty rules are more favourable to the taxpayer than the provisions of the directive itself.