Italian Revenue Agency Ruling 206/2025 confirms the treaty still applies — but the withholding agent bears personal liability if the rate is wrong
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ABSTRACT: Italian Revenue Agency Ruling No. 206 of 7 August 2025 confirmed that the Italy–Russia double-tax treaty continues to apply to dividends paid by Italian companies to Russian-resident shareholders, notwithstanding Russia's 2023 suspension decree. For UK groups that hold Italian subsidiaries with legacy Russian minority stakes, the ruling creates an immediate compliance decision: withhold at the treaty rate of 5% or 10%, or default to the domestic Italian rate of 26%. Getting it wrong exposes the Italian subsidiary — and its directors — to personal liability under Italian tax law, quite apart from the separate sanctions overlay that the ruling does not address.
Does the Italy–Russia dividend withholding rate still apply in 2025? If your Italian subsidiary is about to pay a dividend to a Russian-resident shareholder, or if your UK group inherited a Russian minority stake through a pre-2022 acquisition, the answer from the Italian Revenue Agency is yes — and the withholding agent who gets the rate wrong pays the price.
Does the Italy–Russia Tax Treaty Still Apply to Dividends in 2025?Yes. Italian Revenue Agency Ruling No. 206 of 7 August 2025 (
Risposta a interpello n. 206, Agenzia delle Entrate, 7 agosto 2025) confirmed that the Convention between Italy and the Russian Federation for the avoidance of double taxation, signed in Rome on 9 April 1996, ratified by Italy in 1997 and in force since 1998, remains in force as a matter of Italian law.
Russia's Presidential Decree No. 585 of 8 August 2023 suspended the application of the beneficial articles of Italy's treaty and 37 other tax conventions on the Russian domestic side. Italy has not reciprocated that suspension. Under the Vienna Convention on the Law of Treaties (1969), a state cannot unilaterally terminate or suspend a treaty except through the treaty's own exit provisions; Russia's decree binds Russian courts and tax authorities, not Italian ones. Italy treats the convention as valid. The treaty's dividend article — Article 10 — continues to apply when an Italian company pays dividends to a Russian-resident recipient.
What Withholding Tax Rate Applies to Dividends from an Italian Company to a Russian Shareholder?Article 10 of the Italy–Russia double-tax convention sets two rates. A corporate shareholder that has held directly at least 10% of the Italian company's capital throughout the preceding twelve months is entitled to a 5% withholding tax on the gross dividend. All other shareholders — individuals, funds, corporate holders below the 10% threshold — are taxed at 10%.
Without the treaty, the default Italian domestic rate is 26%, applied under Article 27(3) of Presidential Decree No. 600 of 29 September 1973 (
DPR 29 settembre 1973 n. 600). The gap between 10% and 26% is not a rounding error. On a dividend of EUR 500,000, the difference in tax withheld is EUR 80,000. On a EUR 2 million distribution from a subsidiary with a Russian minority partner holding, say, 15% of the share capital, that number rises to EUR 336,000 in withheld tax — a significant cash exposure for any treasury function.
Unlike in most common-law countries, where the payer of a dividend typically remits withholding tax as a practical matter but the primary legal liability remains with the recipient, Italian law places the obligation squarely and personally on the
sostituto d'imposta — the withholding agent, in practice the Italian company itself (and, under certain circumstances, its directors). If the Italian subsidiary withholds at the wrong rate and cannot recover the shortfall from the recipient, the Italian tax authority collects from the company. There is no statutory right of recourse that overrides this. UK groups accustomed to the PAYE or corporate withholding model, where HMRC's primary enforcement target is the beneficial owner, will find this counterintuitive and operationally uncomfortable.
The Exposure Most UK Groups Have Not MappedThis is the compliance gap that existing commentary almost entirely misses, and it sits precisely at the intersection of Italian tax law, EU sanctions, and legacy corporate structure.
Many UK-headquartered groups that acquired Italian businesses between 2015 and 2021 took on minority Russian shareholders as part of joint-venture or co-investment arrangements. After the February 2022 invasion of Ukraine and the subsequent EU and UK sanctions packages, those stakes were often frozen or transferred to holding structures — but the withholding instructions held by the subsidiary's directors, accountants, or paying bank were rarely revised. The subsidiary continues to issue dividend resolutions, the paying agent applies whatever rate was coded into the system in 2019, and neither the Italian tax return nor the group's sanctions register flags the mismatch.
The mismatch has two faces. If the subsidiary has been withholding at 26% on the basis that the treaty no longer applies, it may be over-withholding — a liquidity cost to the Russian recipient and a potential treaty-based refund claim the subsidiary has no instruction to process. If, conversely, it has been applying the 5% or 10% treaty rate without refreshing the documentation proving the recipient's Russian tax residence and the shareholding threshold, it is under-withholding and personally liable for the difference.
Article 27(3) of DPR 600/1973 is explicit: the withholding agent that fails to operate the correct withholding is liable for the tax not withheld, plus interest, plus an administrative penalty of between 20% and 30% of the unwithheld amount under Legislative Decree No. 471 of 18 December 1997 (
D.Lgs. 18 dicembre 1997 n. 471), Article 14. There is no cap tied to good faith unless the taxpayer can demonstrate reliance on a specific prior ruling.
Can an Italian Company Be Penalised for Applying the Wrong Withholding Rate on Dividends to Russia?Yes, and the penalties are not trivial. A company that withholds too little faces the tax shortfall plus interest at the statutory rate (currently 5% per annum) plus the Article 14 penalty. A company that withholds too much faces a different risk: the Russian recipient may assert a treaty refund claim, but Italy's refund procedure — the
istanza di rimborso filed with the Italian Revenue Agency — takes 18 to 36 months on average and requires the recipient to file in Italy, something a sanctioned Russian entity may be practically unable to do.
There is a further layer that Ruling 206/2025 deliberately does not address: EU Regulation 833/2014 (
Regolamento (UE) n. 833/2014 del Consiglio) as amended through 2024, and its UK equivalent under the Russia (Sanctions) (EU Exit) Regulations 2019, restrict certain financial flows to designated persons and entities. Paying a dividend to a sanctioned Russian shareholder — even at the treaty rate, even with full Italian tax compliance — may constitute a prohibited transaction under EU or UK sanctions law. The Italian Revenue Agency's ruling speaks only to the tax treaty; it is silent on whether the payment is lawful. A UK group acting on the ruling without first screening the Russian shareholder against the EU and UK consolidated sanctions lists is completing half the analysis.
Quod non est in actis non est in mundo — what is not on the record does not exist in law. For a UK group, this maxim carries a specific warning: a dividend payment that appears compliant on the Italian tax return but is not captured on the group's sanctions compliance log exists, legally speaking, in two different regulatory universes at once.
How Does Russia's Treaty Suspension Affect Italian Companies Paying Dividends?Russia's 2023 suspension decree creates a mismatch rather than a mutual abrogation. Italy continues to offer treaty protection; Russia does not. In practice this means a Russian corporate shareholder receiving a dividend from an Italian subsidiary will not be entitled to the reduced treaty rate at the Russian end — Russia taxes the receipt under its domestic rules — but Italy still applies the reduced withholding at source.
For the Italian subsidiary, this asymmetry is mostly irrelevant: the subsidiary's obligation runs to the Italian tax authority, not to the Russian tax system. What matters to the Italian withholding agent is whether the conditions in Article 10 of the treaty are met on the Italian side: the recipient is tax-resident in Russia (a certificate of residence from the competent Russian authority, renewed annually), holds the requisite percentage of the Italian company's capital, and is the beneficial owner of the dividend.
The Italian Court of Cassation, in its Decision No. 23842 of 25 August 2025 (
Cass. civ., Sez. V, 25 agosto 2025 n. 23842), confirmed in a related tax-residence context that the substance-over-form standard Italy applies to cross-border structures requires evidence of a "wholly artificial arrangement" before treaty benefits can be denied. By analogy, a Russian shareholder with a genuine economic stake in an Italian company — not a shell interposed purely to capture the lower rate — retains its entitlement under Article 10. The test is substance, not nationality.
The philosopher Hannah Arendt observed that bureaucratic procedures have a way of generating their own legitimacy regardless of the underlying political reality. Russia's suspension decree has precisely that character: it has changed Russian practice, persuaded some Italian advisers to stop applying the treaty, and created a de facto compliance gap — without having any legal effect on Italian obligations at all.
Practice Note: The Mistake We See Most OftenIn our files, the most common error is a failure to refresh the Russian shareholder's certificate of tax residence after 2022. Italian Revenue Agency practice requires an annual certificate from the Russian Federal Tax Service confirming the recipient's Russian tax residence. Many Italian subsidiaries obtained this certificate once, at the time of the investment, and filed it with the notarial deed of the shareholder meeting that approved the first dividend. Nobody collected a fresh certificate in 2023, 2024 or 2025. Without a current certificate, the treaty rate cannot safely be applied. The Italian withholding agent is then in the awkward position of having applied 5% or 10% on the basis of a document that is three years stale. The Italian Revenue Agency can and does challenge this on audit.
What UK Groups Should Do Now: A Practical SequenceThe sequence is not complicated, but each step must be completed before the dividend resolution is passed, not after.
First, identify whether any current or former Russian-resident entity holds a direct or indirect stake in any Italian subsidiary in the group. Legacy structures from pre-2022 joint ventures are the most frequent source.
Second, screen each identified Russian entity against the EU consolidated sanctions list and the UK Office of Financial Sanctions Implementation (OFSI) list. A dividend to a designated person is prohibited regardless of treaty entitlement.
Third, obtain a current (dated within the tax year) certificate of Russian tax residence from the Russian Federal Tax Service for any shareholder intending to claim treaty rates. Without it, withhold at 26% and advise the shareholder to file a refund claim.
Fourth, verify the shareholding percentage against the Italian company's share register (the
libro soci) as at the qualifying date. The 10% threshold for the 5% rate is measured on the capital held, not on voting rights.
Fifth, ensure the dividend resolution, the withholding tax payment slip (
modello F24), and the annual withholding tax return (
Certificazione Unica and
modello 770) all reflect the same rate. Mismatches between these three documents are the most reliable audit trigger in Italian Revenue Agency practice.
Frequently Asked QuestionsIf Russia suspended the tax treaty, does Italy still have to apply the 5% or 10% rate?Yes. Italy's position, confirmed by Ruling 206/2025, is that Russia's unilateral suspension decree does not bind Italy. The treaty rate applies from the Italian side, provided the shareholder's qualifying documentation is in order. Russia's domestic suspension affects what Russia does with the income on receipt, not what Italy withholds at source.
Does the sanctions regime override the tax treaty for dividend payments to Russian shareholders?These are separate legal frameworks. The treaty says Italy must apply a reduced withholding rate. EU Regulation 833/2014 and UK sanctions law may prohibit the payment itself if the recipient is a designated person. A payment can be tax-compliant and still be a sanctions violation. Both checks must be run independently, and in that order: screen first, then set the withholding rate.
How long does it take to recover over-withheld Italian tax if the 26% rate was applied in error?A refund claim filed with the Italian Revenue Agency (the Agenzia delle Entrate, Italy's central tax authority) takes between 18 and 36 months in practice, assuming the claimant can file in Italy and the documentation is complete. If the Russian shareholder is subject to sanctions restrictions that prevent it from engaging Italian advisers or operating Italian bank accounts, the practical ability to recover the over-withheld tax may be severely limited regardless of the legal entitlement.
Image prompt: A glass-walled boardroom in a Northern Italian city at dusk, warm amber light falling across a long conference table scattered with open corporate binders, a laptop showing a spreadsheet of tax calculations, and two lawyers — one reviewing a printed Italian tax ruling, one on a call — with the city skyline visible behind them. The atmosphere is focused and slightly urgent. Colour palette: deep amber, cool grey, ivory paper. Documentary realism, no text in the image.
Image file: italy-russia-tax-treaty-dividends-withholding-2025-uk-cover
HREFLANG BLOCK:
JSON-LD:
LANGUAGE QA: squarely and personally on the sostituto d'imposta -> squarely on the sostituto d'imposta · remains fully operative from Italy's perspective -> remains in force as a matter of Italian law · Italy did not mirror that suspension -> Italy has not reciprocated that suspension · a state cannot unilaterally terminate or suspend a bilateral treaty outside the treaty's own termination clause -> a state cannot unilaterally terminate or suspend a treaty except through the treaty's own exit provisions · the gap between 10% and 26% is not a rounding error -> the difference between 10% and 26% is far from trivial · a material cash item for any treasury team -> a significant cash exposure for any treasury function · the dividend instruction templates used by the Italian subsidiary's directors, accountants, or paying bank were rarely updated -> the withholding instructions held by the subsidiary's directors, accountants, or paying bank were rarely revised · the mismatch has two faces -> the mismatch cuts both ways
Quality: Italian terms without a plain explanation: PEC
GATE: REVIEW — check AMBER
Source check: verdict AMBER — verify before publication
CHECK:
Ruling 206/2025 (Agenzia delle Entrate, 7 Aug 2025) — REFERENCES: Risposta a interpello n. 206, 7 agosto 2025. EXISTS? Provided as a confirmed timeliness hook in the brief; to be verified at agenziaentrate.gov.it for exact text. CONTENT MATCHES? Yes per brief. VERDICT: AMBER (primary source URL not independently retrieved during drafting; brief-confirmed).
Cass. civ. n. 23842 of 25 August 2025 — REFERENCES: Corte di Cassazione, Sez. V, 25 agosto 2025 n. 23842. EXISTS? Provided as a timeliness hook in
REINFORCED CHECK (second pass on the authorities):
Now let me do a targeted search for the Italy–Russia 1996 Convention text on Normattiva or finanze.gov.it to find Articles 10, 14, and 27 specifically, and to confirm the Cassation Decision No. 23842.I now have sufficient information. Let me also note key findings:
- **Decision No. 23842**: Confirmed by multiple secondary sources as Decision No. 23842 of 25 August 2025 of the Italian Supreme Court, concerning Italian tax residence of foreign entities and the abuse-of-law doctrine. The ruling is cited in several Italian law publications. No direct URL on italgiure.giustizia.it was found in results — only secondary sources.
- **Article 10** (Italy–Russia Convention, dividends): Art. 10 of the Convention provides for concurrent taxing rights for the source State and the State of residence of the recipient, but limits the source State's taxation through reduced rates: 5% of the gross amount of dividends if the recipient is a company holding directly at least 10% of the capital of the paying company; 10% of the gross amount of dividends in all other cases. The convention text is available on finanze.gov.it.
- **Article 27** (DPR 600/1973, domestic withholding): Art. 27, paragraph 3 of Presidential Decree No. 600/1973, profits paid to non-resident persons, in relation to shareholdings not connected with a permanent establishment in Italy, are subject to withholding tax at the rate of 26%. Confirmed also on EUR-Lex as a primary source reference.
- **Article 14** (Italy–Russia Convention, non-discrimination): Article 14 of the Italy–Russia convention concerns non-discrimination in tax matters: the citizens of a Contracting State shall not be subjected in the other Contracting State to any taxation which is more burdensome than the taxation to which citizens of that other State are subjected. However, the article in question does not appear to use Article 14 of the convention — it focuses on dividends (Art. 10) and domestic withholding (Art. 27 DPR 600/1973). There is no mention of Article 14 in the article's described context, making its inclusion unclear.
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**Court of Cassation, Decision No. 23842** | EXISTS: yes | PRIMARY SOURCE: secondary only (cited in ciccioriccioassociati.com, osservatorio-fiscalita.it, rivistadirittotributario.it, lexced.com; no direct italgiure.giustizia.it URL found in search results) | CONTENT consistent? partial — the decision is confirmed as existing and concerning Italian tax residence of foreign entities / abuse-of-law doctrine (esterovestizione), but the article uses it in the context of the Italy–Russia dividend withholding question; the decision does not directly concern the Russia treaty dividend rate, making its relevance to the article's specific claim unclear
**Article 10** (Italy–Russia Convention 1996, dividends) | EXISTS: yes | PRIMARY SOURCE: finanze.gov.it (https://www.finanze.gov.it/export/sites/finanze/.galleries/Documenti/dipartimento_pol_fisc/ — the Ministry of Finance hosts the convention text; the Agenzie delle Entrate ruling No. 206/2025 also directly references it at https://www.agenziaentrate.gov.it/portale/documents/20143/9256977/Risposta+n.+206_2025.pdf) | CONTENT consistent? yes — Article 10 is confirmed as the dividend article of the Italy–Russia Convention, providing 5%/10% reduced WHT rates, exactly as described in the article
**Article 27** (DPR No. 600/1973, domestic withholding on dividends to non-residents) | EXISTS: yes | PRIMARY SOURCE: secondary only for the specific Normattiva page; confirmed via EUR-Lex (https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:62007CC0540) and the Agenzia delle Entrate ruling (https://www.agenziaentrate.gov.it/portale/documents/20143/9256977/Risposta+n.+206_2025.pdf), both of which cite Art. 27 DPR 600/1973 as the domestic 26% withholding provision | CONTENT consistent? yes — Article 27, para. 3 of DPR 600/1973 is confirmed as the provision imposing 26% WHT on dividends paid to non-resident shareholders without a permanent establishment in Italy, consistent with the article's use
**Article 14** (Italy–Russia Convention 1996, non-discrimination) | EXISTS: yes | PRIMARY SOURCE: secondary only (finanze.gov.it hosts the Italy–USSR convention text which contains Art. 14 on non-discrimination; the 1996 Italy–Russia convention text is referenced via taxrus2000.com and the OECD MLI position document at oecd.org, but no direct primary-source URL for the 1996 Italy–Russia convention with Art. 14 confirmed) | CONTENT consistent? no — Art. 14 of the Italy–Russia Convention concerns non-discrimination in tax matters (not dividends), and the article as described focuses entirely on dividend withholding rates under Art. 10 and domestic Art. 27 DPR 600/1973; no use of Art. 14 is evident or explained in the described article content
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**OVERALL: AMBER** — Article 10 and Article 27 exist and are consistent with primary or near-primary sources; Decision No. 23842 exists but is found via secondary sources only and its connection to the article's dividend-withholding thesis is indirect; Article 14 exists but its relevance to the described article content is not established (partial/inconsistent use).
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Author: Editorial Team — Panato Law Firm
Editorial Team — Panato Law Firm Staff
