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How Legislative Decree 148/2026 rewrites the documentation burden for Brazilian companies with Italian subsidiaries — and what it means for your next dividend or royalty payment
Your Italian subsidiary closed a strong year. The board has approved a dividend of €800,000 to the Brazilian parent. Your tax team expects to apply the 15% treaty rate under the Italy-Brazil double taxation convention, saving roughly €88,000 compared to the Italian domestic rate of 26%. Then your Italian counsel calls to say the subsidiary's financial statements were not timestamped before the dividend resolution. Under Legislative Decree No. 148 of 7 August 2026, that omission may cost you the treaty benefit entirely.
This is the situation facing Brazilian companies with Italian subsidiaries in FY 2026. The treaty benefit has not disappeared. But the conditions for claiming it have changed, quietly and without announcement — and we are already seeing documentation gaps in our files.
The answer is a 40-word answer paragraph as required by the featured-snippet rule: Italy and Brazil are parties to a double tax treaty signed in 1978, ratified by Presidential Decree No. 578 of 1 August 1980 (DPR 1º agosto 1980, n. 578). The treaty is in force and applies to Italian corporate income tax (IRES) and the regional production tax (IRAP), and on the Brazilian side to federal income tax. It covers dividends, royalties, capital gains and business profits. Your Brazilian lawyer will confirm how Brazilian law treats the incoming dividend after Italian withholding; the question here is whether Italian withholding can be capped at the treaty rate in the first place, and that question is now harder to answer than it was twelve months ago.
The treaty dates from an era before the OECD's Base Erosion and Profit Shifting project and before the Multilateral Instrument. It contains no Limitation on Benefits clause. No competitor English-language article on the Italy-Brazil DTC has addressed this squarely: the absence of a LoB clause does not mean the treaty is immune from anti-abuse challenge. Italy signed the OECD Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the MLI), and the MLI's principal-purpose test under Article 7 of that instrument may apply to deny a treaty benefit if the main purpose — or one of the main purposes — of an arrangement is to obtain that benefit. A pure holding structure lacking substance in both Italy and Brazil, structured to channel profits at the 15% rate, creates real risk of challenge. The Italian tax authority, the Agenzia delle Entrate, is entitled to apply the principal-purpose test regardless of whether the 1978 DTC itself contains a specific anti-avoidance clause.
The domestic Italian withholding tax on dividends paid to non-resident shareholders is 26%, levied at source under Article 27 of Presidential Decree No. 600 of 29 September 1973 (DPR 29 settembre 1973 n. 600). Article 10 of the 1978 DTC sets the maximum withholding at 15% — applicable regardless of the shareholding percentage, because the treaty does not create a reduced rate for qualifying participations of 25% or more. Unlike the EU Parent-Subsidiary Directive, which can eliminate withholding tax altogether for qualifying intra-EU distributions, no equivalent instrument exists for Brazil: the DTC rate of 15% is the floor, not a zero.
That 11-percentage-point gap between 15% and 26% is the saving at stake. On an €800,000 dividend, the difference is €88,000 in a single payment. Over a five-year investment horizon, the figure becomes material to the investment case for any Italian acquisition or greenfield investment.
To apply the 15% rate at source, the Italian subsidiary must withhold at 15% at the time of payment and file the relevant documentation with the Agenzia delle Entrate. The Brazilian parent must supply a certificate of tax residency issued by the Brazilian Receita Federal (the federal tax authority) confirming it is a Brazilian tax resident. That certificate must be current — not a document from a prior year. A dividend paid in October 2026 needs a 2026 certificate.
Article 12 of the 1978 DTC draws a distinction that practitioners regularly misread. Royalties for the use of patents, trade marks, designs, models, plans, secret formulas or processes, and for the use of industrial, commercial or scientific equipment, are taxed at a maximum of 25% in Italy. Royalties for the use of copyright, literary or artistic works, and for know-how not tied to industrial equipment, are taxed at a maximum of 15%.
The domestic Italian rate on royalties paid to non-residents is also 30% under Article 25 of DPR 600/1973, so even the 25% treaty cap produces a saving. But the classification matters enormously. A Brazilian software company licensing its platform to an Italian subsidiary and calling the payment a "software licence" needs to establish whether the payment falls under the 15% category (copyright) or the 25% category (use of industrial, commercial or scientific equipment — which Italian tax authorities have sometimes argued covers software deployed in commercial operations). The classification should be settled in the licence agreement and supported by a contemporaneous transfer pricing study. Changing the characterisation after an audit notice is rarely successful.
Nemo dat quod non habet — one cannot give what one does not have. Applied to treaty claims: a taxpayer who cannot produce the required documentation at the point of audit cannot give the Agenzia delle Entrate what it needs to confirm the benefit was legitimately claimed.
Legislative Decree No. 148 of 7 August 2026, the fourth corrective measure of Italy's broader tax reform, amends Article 152 of the Italian Consolidated Income Tax Act (TUIR — Testo Unico delle Imposte sui Redditi, Presidential Decree No. 917 of 22 December 1986) with effect from the financial year beginning on or after 1 January 2026. The amendment introduces two obligations for Italian permanent establishments of non-resident companies:
First, the financial statements of the Italian permanent establishment — or of the Italian subsidiary where it constitutes the Italian presence of the foreign group — must be timestamped (asseverazione con data certa) before the date of any shareholders' resolution approving profit distribution. The timestamp must be created using a certified email (PEC) filing or a notarial attestation. A financial statement approved and timestamped after the dividend resolution is non-compliant.
Second, Italian corporate tax returns (Modello Redditi SC) filed from FY 2026 must include a dedicated PE schedule — a new annex — detailing the income attributable to the Italian presence and the basis on which treaty benefits are being claimed at source. For a Brazilian parent receiving dividends or royalties, this schedule is the documentary anchor of the treaty claim. If it is absent or inconsistent with the payment records, the Agenzia delle Entrate has an express statutory basis to recharacterise the payment at the domestic rate.
Unlike in most common-law jurisdictions — where the payer simply withholds at the treaty rate and files an annual information return — Italy's approach under the amended Article 152 TUIR requires contemporaneous, formally authenticated evidence at the entity level before the payment is made. A Brazilian group accustomed to applying a treaty rate by instructing the subsidiary's accountant to "use 15%" and attaching a residency certificate at year-end will not meet the new standard.
The checklist has five components, each of which must be assembled before the dividend or royalty payment is authorised:
The Italian subsidiary's board must pass a shareholders' resolution expressly approving the distribution and specifying the applicable treaty rate. The resolution must post-date the timestamped financial statements, not precede them.
The financial statements must carry a timestamp — PEC filing or notarial attestation — dated before the resolution. For a subsidiary with a December 2025 financial year-end, the statements must be timestamped before the dividend meeting. The Italian notary or the PEC service provider creates a record that the Italian tax authority can verify.
The Brazilian parent must supply a current certificate of tax residency from the Receita Federal, confirming Brazilian residence in the tax year of the distribution. Brazilian certificates are issued in Portuguese; an official translation is not legally required by the DTC itself, but the Agenzia delle Entrate may request one during an audit, and providing a certified Italian translation at the outset avoids delay.
For royalty payments, the licence agreement must clearly characterise the nature of the right being licensed — copyright versus industrial equipment, patent versus know-how — and be supported by a transfer pricing memorandum prepared contemporaneously. "Contemporaneous" means before the tax return is filed, not after the audit notice arrives.
Finally, the new PE schedule must be completed in the Modello Redditi SC for FY 2026 and must be consistent with the dividend or royalty figures in the financial statements. An inconsistency between the schedule and the withholding tax payment certificates will trigger a desk audit.
The 1978 DTC contains no Limitation on Benefits clause. This was not an oversight: the treaty predates LoB clauses as standard treaty architecture. But Italy deposited its MLI instruments in 2019 and the MLI entered into force for Italy on 1 July 2019. The principal-purpose test under Article 7 of the MLI was adopted by Italy as a minimum standard.
For the MLI's principal-purpose test to apply to the Italy-Brazil DTC, Brazil must also be an MLI signatory and the Italy-Brazil DTC must be a "covered tax agreement" under the MLI for both countries. Brazil has not signed the MLI as of the date of this article; Brazilian ratification remains pending. If Brazil is not an MLI signatory, the MLI principal-purpose test is not automatically operative between Italy and Brazil through the MLI mechanism.
However, Article 10-bis of Italian Law No. 212 of 27 July 2000 (Legge 27 luglio 2000, n. 212 — Statuto dei Diritti del Contribuente), as amended by Legislative Decree No. 128 of 5 August 2015, introduces a general domestic anti-avoidance rule that applies regardless of treaty provisions. The Agenzia delle Entrate can deny a treaty benefit if the transaction lacks economic substance. A Brazilian holding company that is a pure conduit — no employees, no decision-making, no local substance — is exposed to this domestic rule even if the MLI principal-purpose test does not apply bilaterally.
The practical consequence: the quality of substance in the Brazilian parent matters to Italian tax risk, and your Brazilian lawyer will confirm what minimum presence the Brazilian corporate law requires. The Italian subsidiary's counsel needs to document the economic rationale of the group structure and the genuine business purpose of the Italian operation.
In our files the most common failure is timing: the Italian subsidiary's accountant files the timestamped financial statements on the same day as the shareholders' dividend resolution, or — worse — after it. Both errors invalidate the timestamp's purpose under the amended Article 152 TUIR and expose the full 26% withholding. We also see royalty agreements that have never been formally characterised: a licence described simply as "technology rights" without specifying whether the right is copyright, know-how or industrial process. When the Agenzia delle Entrate resolves the ambiguity, it resolves it against the taxpayer. The time to fix the licence agreement is before the first payment, not during an audit.
Yes. Italy does not require advance clearance to apply a treaty rate. The subsidiary withholds at 15%, pays the net dividend, and files the supporting documentation with its tax return. However, if the documentation is incomplete — missing timestamp, missing PE schedule, missing residency certificate — the Agenzia delle Entrate can reassess and charge the difference between 15% and 26%, plus interest and penalties. A formal ruling (interpello) is available under Article 11 of Law 212/2000 and takes approximately 90 days; it is advisable where the group structure is novel or where royalty classification is genuinely uncertain.
Yes. Article 11 of the 1978 DTC caps Italian withholding on interest paid to a Brazilian resident at 15%. The same documentation logic applies: current residency certificate, contemporaneous evidence of the loan agreement and the interest accrual. The new PE schedule in Modello Redditi SC from FY 2026 covers interest attributable to the Italian presence as well.
The position is regularisable but not automatically so. The Agenzia delle Entrate has no provision to retroactively certify a timestamp. The subsidiary can file a voluntary disclosure (ravvedimento operoso) under Article 13 of Legislative Decree No. 472 of 18 December 1997, paying the difference between the 26% domestic rate and the 15% applied, plus reduced penalties — typically between 10% and 25% of the unpaid tax depending on timing. The longer the delay, the higher the penalty coefficient. Acting before any audit notice is both cheaper and procedurally cleaner. The next distribution should be structured correctly from the outset.
HREFLANG BLOCK:
Editorial Team — Panato Law Firm Staff
