Article summary

• Italy has increased WHT on Italian-source dividends paid to qualifying EU/EEA pension funds from 11% to 20%, effective 12 August 2026, to align the rate with the 20% substitute tax applicable to Italian pension funds.

• The rates are aligned, but the tax bases are not. Foreign pension funds generally suffer definitive 20% WHT on the gross dividend, while Italian pension funds are taxed at 20% on their annual net accrued investment result (risultato netto maturato), taking account of portfolio gains and losses, including certain unrealised changes and carried-forward negative results.

• This difference may remain relevant under Article 63 TFEU. CJEU case law - including Miljoen/Société Générale, College Pension Plan and XX, most recently reaffirmed in iShares Europe ETF (C-139/25) on 17 September 2026 - indicates that the comparison should focus on the ultimate source-State tax burden, rather than nominal rates alone, and that the operation of the resident pension-fund tax regime may be relevant.

• The key unresolved issue for Italy is how far portfolio-level losses, unrealised changes and carried-forward negative results should be taken into account when comparing the two regimes. Société Générale cautions against attributing unrelated losses to individual dividends, while College Pension Plan and XX support consideration of the broader resident tax regime.

• For pension funds, asset managers, custodians and WHT reclaim providers, the new regime may therefore create potential EU-law refund claims. Treaty relief must also be considered, as it may reduce or neutralise any difference in taxation.

A qualifying foreign pension fund is, in principle, subject to a definitive 20% Italian tax on the gross amount of each Italian dividend. An Italian pension fund is instead subject to a 20% substitute tax on its annual net accrued investment result (risultato netto maturato). That result is determined at portfolio level and reflects gains and losses, including accrued changes in asset values. Negative annual results may be carried forward and, in certain circumstances, offset between investment lines.

This distinction raises a potentially important question under the free movement of capital in Article 63 TFEU: does aligning the nominal rate at 20% actually eliminate the difference in tax treatment between resident and non-resident pension funds?

Recent case law of the Court of Justice of the European Union (“CJEU”), culminating in its judgment of 17 September 2026 in iShares Europe ETF, C-139/25, suggests that the answer cannot be derived from the headline rates alone. The relevant inquiry concerns the tax burden resulting from the source State's tax system.

For asset managers, pension funds, custodians and WHT reclaim providers, the new Italian regime may therefore open a new line of EU-law refund claims.

The new Italian rule

Article 26 of Legislative Decree No. 148 of 7 August 2026 amended Article 27(3) of Presidential Decree No. 600/1973, increasing the WHT applicable to Italian-source dividends paid to qualifying EU/EEA pension funds from 11% to 20%. The amendment also concerns qualifying foreign sub-accounts of Pan-European Personal Pension Products (“PEPPs”).

The Decree was published on 11 August 2026 and entered into force on 12 August 2026. The new rate therefore applies to relevant dividends paid from that date.

The legislative materials explain the change by reference to the taxation of Italian pension funds. The previous 11% WHT originated when the substitute tax on the investment result of domestic pension funds was itself 11%. That domestic rate was subsequently increased to 20%, while the special WHT applicable to EU/EEA pension funds remained at 11%.

The 2026 amendment seeks to restore alignment.

Significantly, however, the reform aligns the rate. It does not place foreign pension funds within the domestic pension-fund tax regime or replicate its tax base. That difference may matter under Article 63 TFEU.

How are Italian pension funds actually taxed?

Italian pension funds are not ordinarily taxed by imposing a final 20% tax separately on every dividend, interest payment or capital gain they receive.

Under Article 17 of Legislative Decree No. 252/2005, a defined-contribution pension fund is subject to a 20% substitute tax on its annual net accrued investment result.

Broadly, the statutory calculation starts from the fund's closing net asset value before substitute tax, adjusts for benefits, redemptions and outgoing transfers, deducts contributions and incoming transfers and excludes income already subject to final withholding, exempt income and certain other non-taxable amounts. The resulting amount is compared with the opening net asset value.

The resulting risultato netto maturato represents the fund's overall accrued investment performance for the tax period.

This has several important consequences:

1. Dividends form part of a wider portfolio result

An Italian dividend received by an Italian pension fund does not ordinarily generate a stand-alone 20% final tax.

Instead, the dividend contributes to the annual net investment result together with other relevant investment income, realised gains and losses and changes in the value of the fund's investments.

The resident regime is therefore fundamentally different from a definitive gross-basis dividend WHT.

2. Unrealised gains and losses matter

The Italian regime operates substantially on an accrual or mark-to-market basis.

Consequently, changes in asset values may affect the annual taxable result even where the relevant securities have not been disposed of.

A €100 Italian dividend could therefore enter an annual result that is substantially lower than €100 because losses elsewhere in the portfolio reduce the overall accrued result.

Conversely, appreciation elsewhere in the portfolio can increase the annual result. The domestic regime is therefore not necessarily more favourable in every period.

3. Negative results may be carried forward

Where the annual management result is negative, the negative amount may be carried forward and deducted from positive results in subsequent periods. Italian administrative guidance indicates that this carryforward is not subject to an ordinary temporal limitation.

The legislation also provides mechanisms under which negative results generated by one investment line can, in certain circumstances, be used against positive results of other investment lines managed by the same pension fund.

This means that a positive Italian dividend can contribute to a year in which the Italian pension fund ultimately has no positive taxable investment result at all.

3. Not every component is economically taxed at 20%

There are also adjustments within the domestic tax base. In particular, returns attributable to qualifying Italian government securities and certain equivalent securities are generally included in the taxable result at 62.5% of their amount. Applying the 20% substitute-tax rate to that reduced amount produces the intended effective taxation of 12.5%.

Thus, even within the resident regime, describing the system simply as a “20% tax on investment income” obscures important features of the actual tax base.

20% versus 20% may therefore be misleading

Consider a deliberately simplified example:

An EU/EEA pension fund receives a gross Italian dividend of €100. Under the new domestic rule, it suffers €20 of final Italian WHT, absent treaty relief.

Assume that an Italian pension fund also receives a €100 Italian dividend during the year, but simultaneously incurs €70 of accrued losses on other investments and earns €20 on another part of its portfolio.

Its relevant annual result attributable to those simplified items would be:

• Italian dividend: +€100

• other investment losses: −€70

• other investment return: +€20

• net result: €50

• substitute tax at 20%: €10.

Both taxpayers are nominally subject to a 20% rate. But the tax systems do not produce the same result.

If the Italian fund had sufficient negative results carried forward from previous periods, its current positive result could potentially be absorbed altogether, whereas the foreign fund would still have suffered €20 of definitive WHT.

The reverse can also occur. Because the domestic system taxes accrued portfolio performance, substantial unrealised gains elsewhere in an Italian pension fund's portfolio may increase its substitute-tax liability even though the foreign fund would not be subject to Italian tax on comparable appreciation.

The EU-law question is therefore not simply whether the resident regime is always more favourable. It is what tax burden must properly be compared for purposes of Article 63 TFEU.

The CJEU looks beyond nominal WHT rates

The CJEU has repeatedly held that less favourable taxation of cross-border dividends can constitute a restriction on the free movement of capital.

For present purposes, an especially important strand of that case law concerns situations where residents and non-residents are subject to different mechanisms of taxation, making a comparison of statutory rates potentially misleading.

Miljoen: the final source-State tax burden

An important starting point is the CJEU's judgment in Joined Cases C-10/14 Miljoen, C-14/14 X and C-17/14 Société Générale.

The cases concerned Dutch dividends received by non-residents. For non-residents, dividend WHT could constitute a final tax, whereas for residents the dividend and associated withholding formed part of a broader income or corporation-tax system.

The Court held that the relevant inquiry was whether the non-resident ultimately bore a heavier tax burden in the source Member State than a resident bore in relation to the dividends.

The comparison therefore could not stop at the formal dividend WHT rates. The resident's income or corporation-tax treatment also had to be considered where the dividend entered that tax base.

That principle remains relevant to Italy: equality of nominal rates does not necessarily demonstrate equality of taxation where one taxpayer suffers final gross-basis WHT and another is taxed through a fundamentally different tax base.

However, Miljoen/Société Générale also contains an important limitation. In considering expenses relevant to the comparison, the Court adopted a relatively narrow approach, focusing on expenses directly linked to the actual receipt of dividends. Financing expenses associated with ownership of the shares did not automatically qualify.

That limitation becomes important when considering whether all portfolio losses and expenses within the Italian pension-fund regime can necessarily be brought into the comparison.

College Pension Plan: particularly relevant for pension funds

A closer factual precedent is C-641/17, College Pension Plan of British Columbia. That case concerned German dividends received by a Canadian pension fund.

German resident pension funds could credit dividend WHT against corporation tax and, importantly, could take account of provisions relating to their pension obligations when determining taxable profit. As a consequence, receipt of dividends could produce only a small increase—or no increase—in the resident pension fund's taxable profit.

The Canadian pension fund, by contrast, suffered definitive German WHT. The Court found that the situations could be objectively comparable where the non-resident pension fund similarly allocated dividends to pension provisions.

The significance of College Pension Plan extends beyond the particular German rules. It demonstrates that, when comparing resident and non-resident pension funds, the CJEU can look at the actual operation of the resident pension-fund tax base, rather than treating the statutory taxation of dividends as an isolated item. This principle is potentially important for Italy.

XX: a more recent development of the “ultimate burden” test

The CJEU returned to these issues in C-782/22, XX (Unit-linked contracts), judgment of 7 November 2024. The case concerned dividends received by a non-resident life-insurance company. The non-resident suffered 15% final WHT on gross dividends.

Resident companies were subject to a different mechanism. Dividend WHT could be credited or refunded and, under the domestic corporation-tax system, obligations towards policyholders affected the calculation of taxable profit. On the facts described by the referring court, the resident company's ultimate tax burden in relation to the dividends could therefore be nil.

The Court restated the relevant inquiry in clear terms: it must be determined whether the WHT imposed on the non-resident causes it ultimately to bear a heavier tax burden in the source Member State than residents bear for the same dividends.

In making that comparison, the Court stated that the dividend tax payable by the non-resident must be compared with the income or corporation tax payable by the resident whose taxable base includes the income from the shares giving rise to the dividends. That formulation is particularly relevant to the new Italian regime.

XX also revisits the limitation in Miljoen

An important feature of XX is that the Court expressly considered the narrower approach to expenses in Miljoen/Société Générale.

It acknowledged that obligations towards policyholders did not necessarily constitute expenses “directly linked” to the receipt of the dividends in the traditional sense.

But the Court did not treat that as decisive. Instead, it turned to College Pension Plan, expressly noting that the latter judgment had been delivered after Miljoen. The Court examined whether the domestic tax system recognised a sufficiently relevant causal relationship between receipt of investment income, the corresponding obligations towards policyholders and the resulting taxable profit.

This is important for the Italian analysis. It suggests that Société Générale should not automatically be read as establishing that every feature of a resident pension fund's broader tax base must be ignored merely because it cannot be characterised as an expense directly attributable to an individual dividend.

At the same time, XX does not establish that every unrelated portfolio loss must necessarily be allocated against dividends when performing the comparison.

That distinction may ultimately become central to litigation concerning the Italian regime.

iShares: the CJEU's latest statement

The relevance of this jurisprudence has now been reinforced by the CJEU's judgment of 17 September 2026 in C-139/25, Administración General del Estado v iShares Europe ETF.

The case concerned a US regulated investment company receiving Spanish dividends.

Qualifying Spanish collective investment undertakings could benefit from a 1% corporation-tax rate, while the US fund suffered 15% Spanish WHT under the Spain-US tax treaty.

In identifying the restriction, the CJEU stated that applying to dividends paid to non-resident collective investment undertakings a tax burden heavier than that borne by resident collective investment undertakings in respect of dividends paid to them constitutes less favourable treatment capable of restricting the free movement of capital.

Notably, the Court cited XX for that proposition.

The sequence of authorities can therefore now be viewed as a developing line:

1. Miljoen (2015) established the importance of the final source-State tax burden rather than a purely formal comparison of WHT rates.

2. College Pension Plan (2019) applied the analysis specifically in the pension-fund context and demonstrated the relevance of the resident fund's tax-base mechanics.

3. XX (2024) expressly revisited both lines of authority and restated the test in terms of whether the non-resident ultimately bears a heavier source-State tax burden for the same dividends.

4. iShares (2026) has now relied on XX when restating the heavier-tax-burden test for resident and non-resident investment funds.

This makes XX and College Pension Plan particularly relevant authorities when considering Italy's new pension-fund WHT.

Objective comparability remains a separate question

The tax-burden comparison should nevertheless be distinguished from the question whether resident and non-resident funds are in objectively comparable situations for purposes of Article 65 TFEU.

The CJEU assesses comparability having regard to the objective, purpose and content of the national provisions concerned.

The pension-fund context is particularly relevant here:

• In College Pension Plan, the Court accepted that a third-country pension fund could be comparable to a domestic pension fund where the relevant characteristics and allocation of investment income corresponded sufficiently to those underlying the domestic regime.

• In C-39/23, Keva and Others, the Court again addressed comparability in the pension context. The case concerned Swedish taxation of dividends paid to Finnish public pension institutions where comparable Swedish public pension funds benefited from exemption. The Court rejected an approach based simply on institutional or organisational differences and examined the characteristics relevant to the purpose of the national tax regime.

These cases suggest that a foreign pension fund does not necessarily have to replicate the legal structure of an Italian pension fund exactly. The relevant comparison should focus on the characteristics material to the Italian tax regime and its objectives.

That analysis will nevertheless have to be performed fund by fund.

How far does the Italian net-basis argument go?

The strongest Article 63 proposition is therefore relatively clear:

Italy cannot demonstrate equal treatment merely by pointing to the fact that both rates are now 20%.

The foreign pension fund remains subject to definitive taxation of a gross Italian dividend, whereas the resident pension fund is taxed through an annual net accrued portfolio result.

Under College Pension Plan, XX and now iShares, the substantive operation of that resident tax regime is relevant when determining whether the foreign pension fund ultimately bears a heavier source-State tax burden.

A more ambitious proposition requires greater caution. It does not necessarily follow that every unrelated portfolio loss, unrealised loss or historic negative result of an Italian pension fund must automatically be allocated against Italian dividends for purposes of the Article 63 comparison.

Société Générale provides Italy with an argument for limiting the components that can properly be associated with the dividend.

On the other hand, XX demonstrates that the “directly linked expense” test does not necessarily end the inquiry where the architecture of the domestic tax regime itself recognises a relevant relationship between investment income and the elements reducing the resident tax base.

The precise boundary between those principles has not yet been decided for a tax system structured like the Italian risultato netto maturato regime. That may be where future litigation focuses.

Treaty relief does not necessarily end the inquiry

EU/EEA pension funds may also be entitled to a lower dividend rate under an applicable Italian tax treaty, commonly 15%, depending on the relevant treaty and the fund's entitlement to treaty benefits.

Treaty relief can be important, but its mere availability does not automatically dispose of an Article 63 issue.

The CJEU has consistently accepted that a disadvantage created by source-State legislation can be neutralised through a double tax treaty, but only where the treaty mechanism actually neutralises the difference in treatment.

This aspect is also addressed in iShares. The Court reiterated that the relevant tax advantage must genuinely compensate the source-State disadvantage; a tax credit which is merely theoretical or unusable at the relevant level does not necessarily do so.

The Court's treaty-neutralisation analysis in iShares draws, among other authorities, on C-572/20, ACC Silicones and Miljoen.

For Italian pension-fund claims, treaty entitlement therefore needs to be examined separately and fund by fund.

The Italian Supreme Court has already applied Article 63 to foreign pension funds

The change also comes against an important domestic litigation background.

On 5 June 2026, the Italian Supreme Court issued Order No. 18106/2026 concerning a US pension fund which had suffered 15% Italian dividend WHT under the Italy-US treaty when EU/EEA pension funds were still subject to the special 11% domestic rate.

Following its earlier decision No. 25691/2022, the Court upheld the fund's entitlement to recover the difference.

The decisions are important because Article 63 TFEU extends, subject to the Treaty rules applicable to third countries, to movements of capital between Member States and third countries. The existence of a bilateral treaty providing a 15% rate did not by itself prevent the US fund from invoking the free movement of capital against less favourable Italian taxation.

Following the 2026 amendment, the factual landscape has changed significantly:

A qualifying EU/EEA pension fund now faces a 20% domestic WHT, while a pension fund resident in a treaty jurisdiction may potentially benefit from a lower treaty rate.

This does not automatically establish discrimination - the relevant situations and treaty provisions must be analysed - but it illustrates why the increase to 20% is unlikely to close the EU-law debate.

A possible new category of refund claims

The new regime may consequently produce a new type of refund claim.

The argument would not necessarily be that the 20% WHT rate itself is unlawful.

Rather, a foreign pension fund could seek to establish that:

1. it is objectively comparable to an Italian pension fund having regard to the purpose and characteristics of the Italian pension-fund tax regime;

2. Italy imposes definitive 20% WHT on its gross Italian dividends;

3. the operation of the Italian resident pension-fund regime would result, in respect of the relevant dividends, in a lower source-State tax burden; and

4. any applicable treaty relief does not fully neutralise that difference.

The potential refund would then concern the difference required to eliminate the heavier Italian tax burden.

The evidentiary requirements may be significant

Depending on how the CJEU principles are ultimately applied to the Italian system, a claimant may need to provide information not merely about the dividends received but also about its pension liabilities, investment structure, tax status and potentially the investment results relevant to constructing an appropriate resident comparator.

That makes preservation of contemporaneous data important even before the precise scope of future claims has been determined.

Practical implications

Asset managers, pension funds, custodians and reclaim providers should consider taking the following steps:

1. Identify dividends paid from 12 August 2026. The new 20% domestic rate applies from the entry into force of the amendment.

2. Review treaty entitlement. Where an applicable treaty provides a lower rate, determine whether relief can be obtained at source or through a refund claim.

3. Preserve evidence relevant to comparability. This may include the fund's legal and regulatory status, pension obligations, tax treatment, investment restrictions and treatment of investment returns.

4. Retain portfolio and tax data. If the ultimate-tax-burden approach becomes relevant to refund litigation, information concerning annual investment performance, losses and the treatment of dividends may become important.

5. Avoid assuming that 20% equals 20%. The Italian resident and non-resident regimes use materially different tax bases and taxing mechanisms.

6. Monitor Italian and CJEU litigation. The interaction between the Italian risultato netto maturato regime and the CJEU's developing tax-burden jurisprudence has not yet been judicially resolved.

Outlook

Italy's 2026 amendment appears intended to resolve a historical discrepancy by bringing the WHT rate applicable to qualifying EU/EEA pension funds into line with the 20% substitute-tax rate applicable to Italian pension funds.

But alignment of rates is not necessarily alignment of taxation.

A foreign pension fund now suffers a definitive 20% tax on its gross Italian dividend. An Italian pension fund is subject to a 20% tax on an annual net accrued portfolio result in which gains and losses are aggregated, negative results may be carried forward and certain investment returns receive special treatment.

The CJEU's developing jurisprudence indicates that those differences cannot simply be ignored.

Miljoen established that the analysis must look beyond formal WHT rates to the ultimate source-State tax burden. College Pension Plan demonstrated the importance of the resident tax-base mechanics specifically in the pension-fund context. XX subsequently revisited both strands of authority and confirmed that the question is whether the non-resident ultimately bears a heavier source-State tax burden in respect of the same dividends. And, most recently, iShares has relied on XX when restating that heavier-tax-burden test for investment funds.

There remains an important unresolved question as to how much of the Italian pension fund's portfolio-level netting mechanism must enter that comparison, particularly where losses are economically unrelated to the Italian dividend. Miljoen/Société Générale cautions against an unlimited attribution of expenses and losses, while College Pension Plan and XX demonstrate that the architecture of the resident tax base cannot necessarily be disregarded.

That unresolved boundary may become the central issue in any challenge to Italy's new regime.

For foreign pension funds, the key question after 12 August 2026 is therefore no longer simply “what is the applicable WHT rate?”

It is increasingly:

“Does the Italian tax system ultimately impose the same tax burden on a comparable resident pension fund in respect of the same dividend?”

On the current CJEU case law, a nominal 20%-versus-20% comparison does not, by itself, answer that question.