In this article, the authors examine the conditions that determine whether a subholding company involved in a crossborder interest flow is a beneficial owner and consider the implications of a recent Italian Supreme Court judgment on the beneficial ownership standard.
Tax authorities are often suspicious when a resident company pays interest to its parent company, especially if the parent is a foreign financial subholding company interposed in a cross-border flow of interest. Indeed, that type of parent company may act as a conduit and enable the cross-border interest flow simply to let another group member benefit from a special tax regime.
When the beneficial ownership of a foreign financial subholding company is in question, the Italian tax authority may tell the resident paying agent that the withholding tax on outbound interest has not been properly levied — or has been levied to a lesser extent — as part of a tax scheme that is solely for the benefit of the beneficial owner of the interest.
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