Beneficial ownership and cash pooling: is the Italian Supreme Court moving towards a presumption of abuse in multinational groups?

by Giulia Sabelli

With Order No. 32467/2025, the Italian Supreme Court once again examined the concept of beneficial ownership in the context of cross-border dividend distributions. The decision concerns the non-application of Italian withholding tax on dividends distributed by an Italian company to its Danish parent company.

In the case at hand, the Court denied beneficial owner status to the Danish intermediate holding company, identifying instead the US parent company as the actual beneficial owner of the dividends. This conclusion was based on the alleged lack of both legal and economic availability of the profits at the level of the Danish company and on the absence of genuine economic activity, with particular emphasis placed on the existence of a centralised cash pooling arrangement.

The Case

The Italian Tax Authority challenged an Italian resident company for its failure to apply a 27% withholding tax on dividends distributed in 2011 to its Danish parent company, which in turn was wholly owned by a US ultimate parent company.

Under the group’s financial arrangements, the dividends received by the Danish company were transferred, pursuant to cash pooling agreements, into a central treasury account managed by a Dutch group company acting as the cash pool leader. The treasury company was responsible for centralising and coordinating liquidity management across the multinational group, collecting incoming cash flows and reallocating financial resources among participating entities.

According to the Italian Revenue Agency, the structure amounted to treaty shopping, with the Danish company acting merely as a formal interposed entity, while the US parent company was alleged to be the actual recipient and economic beneficiary of the dividends.

At first instance, the Italian Tax Court reclassified the applicable withholding tax by applying a 5% rate pursuant to Article 10 of the Italy–US tax treaty as an advance payment. On appeal, the Court further held that the 5% withholding tax had to be applied as a final tax.

The Italian company subsequently appealed to the Supreme Court.

The Decision

The Supreme Court dismissed the taxpayer’s appeal, holding that the application of the 5% withholding tax pursuant to Article 10 of the Italy–US tax treaty under a look-through approach was correct.

According to the Court, for the withholding tax exemption under Article 27-bis of Presidential Decree No. 600/1973 to apply, the Italian company was required to demonstrate that the Danish holding company was the effective recipient and beneficial owner of the income. This burden of proof, in the Court’s view, had not been satisfied.

Applying a three-pronged beneficial ownership test, the Court concluded that the US parent company was the true beneficial owner of the dividends. In particular, the Danish company:

  • lacked legal and economic control over the dividends, which were automatically transferred into a centralised cash pooling system formally managed by a Dutch treasury company but substantively controlled by the US parent company (the so-called dominion test);
  • did not carry out any genuine economic activity, nor did it perform meaningful functions in managing the shareholdings it held. Furthermore, it could not even be classified as a “pure” holding company with autonomous substance (substantive business activity test);
  • did not exercise effective decision-making powers, as the strategic management of the group’s European business was attributed to the US parent company (business purpose test).

While the decision is consistent with the Supreme Court’s consolidated anti-abuse case law on beneficial ownership, it gives rise to significant analytical concerns.

Most notably, the ruling risks elevating ordinary features of multinational group organisation, such as centralised treasury functions and cash pooling arrangements, to decisive indicators of artificial interposition. Cash pooling mechanisms are widely regarded as legitimate tools for optimising liquidity management and reducing financing costs within multinational groups and are frequently recommended from both a corporate governance and risk management perspective.

By treating the lack of autonomous cash availability at the level of the intermediate holding company as evidence of the absence of beneficial ownership, the Court appears to conflate economic coordination with legal and economic dispossession, thereby adopting an overly formalistic and potentially distortive interpretation of the beneficial ownership concept.

This approach risks undermining legal certainty for multinational groups operating within the European and international tax framework, particularly in cases where centralised financial management coexists with otherwise lawful and non-artificial holding structures.