Italy-US Tax Convention: capital gains on participations taxable abroad

In its answer to Ruling No. 123/2024, the Italian tax authority (Agenzia delle Entrate) stated that, in case of sales of an Italian company’s shares carried out by a US individual (registered with the Aire – Italians abroad resident registry), the relevant capital gain is taxable only in the United States and not in Italy, by virtue of the prevalence of the conventional rules over the domestic rules on the allocation of tax powers.

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The case originates from a request submitted by a natural person with dual Italian-US citizenship and resident in the United States, owner of a shareholding in an Italian company that was sold to his brothers, who are also shareholders of that company. The petitioner's request to Agenzia delle Entrate concerns the place where the capital gain realized from the sale should be taxed.

Under domestic law, pursuant to Article 23(1)(f) of the Consolidated Income Tax Law (TUIR), non-residents are considered to produce in Italy ''miscellaneous income deriving from activities carried out in the territory of the State and from assets located in that territory, as well as capital gains deriving from the transfer for consideration of shareholdings in resident companies''.

Domestic legislation, however, must be coordinated with international tax conventions, the prevalence of which is stated by Article 169 of the TUIR and Article 75 of Presidential Decree No. 600/1973, and also confirmed by various pronouncements of the Constitutional Court.

In the covenant context, according to Article 13(4) of the Italy-US Convention, which is modelled on the 2017 OECD Model, capital gains from the disposal of participations are taxable only in the contracting State in which the seller is a resident.

Following the literal wording of the provision, the adverb "only" presupposes taxability only in the contracting State in which the subject is resident (the USA), excluding any concurrent taxation. 

The Convention between Italy and the United States, with respect to capital gains arising from the transfer of equity interests, presents a discipline in line with almost all the treaties entered into by Italy with third States: there are in fact few treaties which provide for an exceptions to this allocation of taxing powers (i.e. Italy-France Convention or Italy-Israel Convention).

Therefore, in accordance with the legitimate precedence of international covenant law over domestic law, Agenzia delle Entrate, reiterating the same conclusions already adopted in previous answers to ruling, attributes the taxability of the capital gain only to the seller's State of residence, i.e. the United States.