European pension funds: Italian dividend withholding rises from 11% to 20%. Does the gap with Italian funds widen?
An in-depth look at Article 26 of Legislative Decree 148/2026, comparing the treatment of Italian and European pension funds and the limits set by EU law.
Two regimes, one Italian-source dividend
From 12 August 2026, Italy's withholding tax on dividends paid to qualifying European pension funds rises from 11% to 20%. The change comes from Article 26 of Legislative Decree 148/2026. Its immediate effect is straightforward: more tax is deducted before the dividend reaches the fund. [1] [2]
The Government describes the increase as aligning the treatment of European and Italian funds. But matching two rates does not tell the whole story. Italian pension funds generally receive dividends without withholding and pay tax on their net investment result. That difference raises the question of compatibility with EU law. [3] [4] [11]
Who is affected, and when?
Article 26 changes Article 27(3), second sentence, of Presidential Decree 600/1973 and the corresponding provision in Article 55(4) of Legislative Decree 33/2025. The payment date determines which rate applies. An earlier decision to distribute profits does not, on its own, preserve the 11% rate for a dividend paid on or after 12 August 2026. [1]
The provision covers pension funds established in qualifying EU and European Economic Area states, subject to the statutory conditions, and foreign sub-accounts of pan-European personal pension products (PEPPs). The decree was republished with explanatory notes on 4 September 2026. [1]
This increase does not apply to every European investor. Companies, individuals, pension funds and collective investment undertakings have different tax rules. Article 27 also provides a separate exemption for qualifying foreign collective investment undertakings; pension fund status does not automatically establish eligibility for that exemption. [1]
What does the increase mean in euros?
| Illustrative gross dividend | Withholding at 11% | Withholding at 20% | Additional tax withheld |
|---|---|---|---|
| €100,000 | €11,000 | €20,000 | €9,000 |
The rate increases by 9 percentage points. The amount withheld increases by approximately 81.82% compared with the previous amount. This example uses the domestic rate only; it assumes no treaty relief, refunds or tax credits in the fund's country of residence.
The unequal treatment at source: no domestic withholding, outbound withholding
The comparison concerns the same Italian-source dividend, paid either to an Italian fund or to a comparable foreign fund. Under the ordinary regime discussed here, the Italian fund receives it without withholding at source. The European fund faces outbound withholding at the 20% domestic rate, or more favourable treatment under the applicable tax treaty if it meets the conditions. Here, "0% withholding" means no deduction at source; it does not mean exemption from every tax. [1] [3] [4]
The difference to assess is therefore 0% versus the withholding actually applicable to the outbound payment. Where the domestic 20% rate applies, the gap at source is 20 percentage points. Where a lower treaty limit applies, the comparison uses that withholding rate. The increase from 11% to 20%, by contrast, measures the change in the domestic rate charged to the foreign fund.
A treaty may reduce the charge, but does not automatically establish equivalent treatment of the two funds. Check the fund's eligibility to claim treaty benefits, tax residence, beneficial ownership where required and the conditions for relief. Italian tax on the fund's investment result remains distinct from withholding on the dividend payment.
Under the ordinary regime for Italian supplementary pension funds, Article 17 of Legislative Decree 252/2005 imposes a 20% substitute tax on the net investment result accrued during the tax year. Italian Revenue Agency Circular 2/E of 13 February 2015 explains that investment income generally reaches these funds without tax withheld at source, subject to specific exceptions, and describes the treatment of negative results. [3] [4]
| Issue | Italian fund under the ordinary regime | Foreign fund qualifying under Article 27 |
|---|---|---|
| Italian dividend | 0% at source (no withholding under the ordinary regime); included in the investment result under the applicable rules. | 20% domestic rate from 12 August 2026, subject to any more favourable treaty treatment available to the fund. |
| Tax base being compared | Net accrued investment result, with the adjustments required by the regime. | The dividend subject to withholding. |
| Negative results | Taken into account under the substitute tax regime. | Withholding on a dividend does not reproduce the Italian fund's net-result calculation. |
Receiving a dividend without withholding does not mean paying no tax. Equally, later taxation does not automatically remove a disadvantage at source. The withholding comparison remains 0% versus the applicable outbound rate. A nominal 20% rate for both foreign-fund withholding and Italian-fund net-result tax does not settle that comparison. Immediate withholding, access to the dividend and opportunities for a credit, deferral or refund must also be examined. The net-result regime provides context; it does not justify offsetting a discriminatory dividend withholding against unrelated tax burdens. [8] [9]
Why did the Government raise the rate?
The explanatory report, referring to Article 22 of the draft, cites Article 5(1)(d) of enabling Law 111/2023 and presents alignment with Italian pension funds as its objective. It also confirms that only the rate changes: the conditions and withholding mechanism remain in place. [11]
The technical report estimates €6.3 million in additional annual revenue from 2027, based on €69.6 million in 2024 dividends reported through Form 770/2025. This is a revenue forecast; the legal start date remains 12 August 2026. [12] [1]
Questions raised during parliamentary scrutiny
The parliamentary research dossier questions whether the specific enabling principle described in the report appears in the enabling law. The budget dossier asks whether a rate change alone implements the delegation or simply raises tax to help fund other measures. These are parliamentary staff observations, not findings of invalidity. [13] [12]
In the clarifications recorded in the Budget Committee's opinion of 4 August 2026, the Government reiterates the aim of aligning the rates. The Committee gives a favourable opinion subject to a financial condition. The dossier objections should be read alongside that response: they do not amount to Parliament rejecting the provision. [14]
Our assessment: the explanation accounts for the choice of 20%, but does not by itself establish equivalent treatment of dividends. The rate is only part of the comparison. The tax base, payment timing and ability to recover withholding also matter.
The limits set by EU law
Italian legislation must comply with freedom of establishment and the free movement of capital, as interpreted by the Court of Justice of the European Union (CJEU). The relevant freedom depends on the legislation and shareholding concerned: owning shares does not always involve establishment. A stated aim of harmonisation cannot, by itself, legitimise a restriction prohibited by the Treaty. [10] [6]
The concern starts with the same dividend: a European fund faces higher immediate withholding, while a comparable Italian fund generally receives it without withholding. The Court recognises that a cash-flow disadvantage can itself be a restriction. The analysis therefore cannot be reduced to the final amount of tax paid. Comparability, the actual disadvantage and any justification still need to be tested against the specific regime. [8]
These judgments show how to approach the comparison. Each concerns a particular tax regime:
- Aberdeen, C-303/07, 18 June 2009: paragraphs 50–56 address comparability for dividend withholding exemption. Neither a different legal form nor the SICAV's Luxembourg tax exemption, by itself, justifies different treatment. Paragraph 53 distinguishes other income. The ruling concerns freedom of establishment. In the Finnish regime, domestic dividends were exempt both at source and in the recipient's income, so applying it to Italian pension funds requires separate reasoning. [10]
- Sofina, C-575/17, 22 November 2018: paragraphs 28–34 examine immediate withholding on loss-making non-resident companies against deferral for residents. Paragraph 29 treats denial of an equivalent domestic cash-flow advantage as a restriction. Timing matters alongside the eventual amount of tax. The case concerns companies, rather than pension funds specifically. [8]
- AllianzGI-Fonds AEVN, C-545/19, 17 March 2022: the Court rules against dividend withholding on non-resident investment undertakings where residents are exempt. Paragraphs 52–56 distinguish other taxes from the dividend charge; paragraphs 78–85 reject fiscal coherence without the required direct link. The judgment supports examining dividend withholding without a generic comparison of all taxes, but concerns a different regime and type of fund. [9]
- Commission v Finland, C-342/10, 8 November 2012: the Court finds unequal treatment where resident funds can deduct provisions for pension liabilities and non-residents cannot. The comparison also considers the effective tax base. [5]
- Pensioenfonds Metaal en Techniek, C-252/14, 2 June 2016: the Court accepts different taxation methods in the Swedish system examined, while preserving the treatment of expenses directly linked to dividends where residents can deduct them. A difference in collection methods is therefore not automatically prohibited. [6]
- College Pension Plan of British Columbia, C-641/17, 13 November 2019: the Court identifies a restriction in the German regime, under the conditions specified in the judgment, where residents benefit from withholding credits or refunds and deductions for reserves, while non-residents face final withholding. [7]
What this means for the new rule: moving from 11% to 20% increases the European fund's tax at source. Any independent cash-flow disadvantage against a comparable Italian fund must be examined without assuming that later tax on the Italian fund's net result eliminates the difference. These cases do not constitute a ruling on Article 26 of Legislative Decree 148/2026, nor do they prohibit every difference between tax methods.
What should be checked for a particular fund?
Start with the fund's legal nature, residence, supervision and eligibility for the regime. Review payment dates, dividend amounts and withholding certificates, then identify a comparable Italian fund and the treatment of negative components. Treaty eligibility, credits that can actually be used abroad and the legal basis for any refund claim also need to be checked. Treaty claims and EU-law claims require distinct reasoning.
The increase does not establish an automatic right to recover 9% or 20%. The difference between the old and new rates measures the additional withholding; it does not, on its own, determine a legally recoverable amount.
Official sources
- Legislative Decree 148/2026, Article 26 and statutory notes; republication of 4 September 2026. Notes reproduce Article 27(3) of Presidential Decree 600/1973 and Article 55(4) of Legislative Decree 33/2025.
- Legislative Decree 148/2026, original publication of 11 August 2026; Article 37 provides for entry into force the following day.
- Legislative Decree 252/2005, Article 17: Italian supplementary pension fund tax regime, reference for 2026.
- Italian Revenue Agency, Circular 2/E of 13 February 2015: net-result tax, investment income and negative results; guidance predating the 2026 amendment.
- CJEU, C-342/10, Commission v Finland, 8 November 2012, ECLI:EU:C:2012:688; paragraphs 33–44.
- CJEU, C-252/14, Pensioenfonds Metaal en Techniek, 2 June 2016, ECLI:EU:C:2016:402; paragraphs 26–28, 48 and 64, and operative part.
- CJEU, C-641/17, College Pension Plan of British Columbia, 13 November 2019, ECLI:EU:C:2019:960; paragraphs 65 and 74, and operative part.
- CJEU, C-575/17, Sofina and Others, 22 November 2018, ECLI:EU:C:2018:943; paragraphs 28–34, especially paragraph 29.
- CJEU, C-545/19, AllianzGI-Fonds AEVN, 17 March 2022, ECLI:EU:C:2022:193; paragraphs 52–56 and 78–85, and operative part.
- CJEU, C-303/07, Aberdeen Property Fininvest Alpha Oy, 18 June 2009, ECLI:EU:C:2009:377; paragraphs 50–56, especially 51–53, and operative part.
- Government Act 430, explanatory report: draft Article 22, subsequently Article 26 of the decree; PDF pages 29–30.
- Parliamentary budget services, Reading Note 399 / Quantification Review 506: draft Article 22, printed pages 87–89; technical report data and observations on the enabling law.
- Parliamentary research services, dossier FI0175 on Government Act 430: draft Article 22, printed page 109; observation on the stated enabling principle.
- Chamber of Deputies, Budget Committee proceedings, 4 August 2026: printed page 53; clarification on aligning rates and Committee opinion.
Related: Article 26 of the Legislative Decree 148/2026 dossier (Italian) — the concise operational summary of what changes.
Disclaimer
This page is provided for informational and educational purposes only and does not constitute tax or legal advice. Fenice 53 S.r.l. does not guarantee the accuracy, completeness or currency of this content with respect to legislative, interpretative or administrative changes occurring after the update date shown on this page, and accepts no liability for direct or indirect damages arising from its use. To determine which rate applies or to assess a refund, ask your accountant or tax adviser to review the fund and relevant payments.
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