"Complete Distributive Rules and the Single Tax Principle: A Review of Recent Italian Case Law"

Michigan Law Authors
Areas of Interest
Publish Date
2019
Publication
Bulletin for International Taxation
Publication Type
Journal Article
Abstract

The authors, in this article, examine the application of complete distributive rules as set out in various tax treaties as it relates to the single tax principle by reference to recent Italian case law.

On 11 October 2018, in Decision No. 25219, the Italian Corte Suprema di Cassazione (Supreme Court, CSC) confirmed that treaty provisions limiting the exercise of the domestic power to tax by the source state also apply where the residence state does not actually tax the relevant item of income. In that case, where a tax treaty attributes exclusive tax jurisdiction over an item of income to the residence state, the domestic law of which currently exempts such item of income, double non-taxation arises.

According to the CSC, when the source state waives its power to tax to the benefit of the residence state, it may not recover its original tax jurisdiction. In other words, the waiver by a contracting state of its power to tax does not have to be necessarily correlated with the exercise by the beneficiary state of its right to tax. Double non-taxation arising as a result of an interaction between treaty provisions and domestic law seems to be acceptable as it is consistent with the basic function of a tax treaty, i.e. to restrict the domestic taxing rights.

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