Key Points
- The Italian Supreme Court (Corte di Cassazione) ends a disparity that lasted decades: a foreign charitable entity cannot pay more tax on Italian dividends than a resident non-commercial entity.
- In its twin judgments nos. 16281 and 16284 of 26 May 2026, the Tax Division holds that a charitable trust is functionally comparable to a foundation.
- The principle set to become a benchmark: comparability "does not presuppose identical forms, but analogous functions".
- The burden of proof remains with the entity, which must provide documentary evidence of its governing instrument, certifications from foreign supervisory authorities and the actual use of its income.
- Practical implications: refund claims within the statutory time limit of 48 months from payment (art. 38 of d.P.R. n. 602/1973) and renewed arguments in pending litigation.
A large English charitable trust has invested in the capital of Italian companies for years. It receives dividends, suffers the full withholding tax applicable to non-residents and submits two separate refund claims — the first for approximately EUR 699,000, the second for almost EUR 1.5 million — totalling more than EUR 2 million: if it were an Italian foundation, it argues, it would pay a fraction of the tax on those same profits.
The tax authorities do not respond, and the lower courts rule against it. After more than a decade of litigation, the Tax Division of the Italian Supreme Court (Corte di Cassazione) reverses the approach: in its twin judgments nos. 16281 and 16284 of 26 May 2026 — both heard in public following referral under interlocutory orders nos. 29109/2025 and 29052/2025 respectively, an indication of the issue's significance — it holds that a charitable trust is functionally comparable to a foundation and cannot suffer less favourable tax treatment in Italy. It is now for the court hearing the case on remittal to make the factual findings.
The case, however, is much more than a well-argued dispute. It lays bare a question affecting international philanthropy as a whole: how much weight does a charitable entity's legal "clothing" carry before the Italian tax authorities? This is far from a theoretical question, given the scale of the phenomenon: in the United States, annual donations to the non-profit sector stand at around USD 300 billion; in the United Kingdom, charitable giving grew by 63% between 2013 and 2018; and Italy itself — where, according to estimates by Fondazione Italia Sociale, more than EUR 5.5 billion was donated in 2019 alone — ranks third in Europe for private philanthropy, behind the United Kingdom and Germany.
Resident and foreign entities: the tax disparity on dividends
Together, the two cases cover the period from 2004 to 2011: no. 16284 concerns dividends received in the three years from 2004 to 2006, and no. 16281 those received between 2006 and 2011. The tax gap at the time was striking. Resident non-commercial entities, including foundations, benefited from the exclusion of 95% of their profits from taxation (art. 4, paragraph 1, letter q, of D.Lgs. n. 344/2003): with corporate income tax (IRES) at 33% applied to the remaining 5%, the effective tax charge was only 1.65%. The foreign entity, by contrast, suffered full withholding tax at source.
Much has changed since then, but the disparity is by no means a thing of the past. For residents, the 2015 Stability Law (L. n. 190/2014) increased the taxable proportion to 77.74%; from 2021, the Budget Law (L. n. 178/2020, paragraphs 44–47) reintroduced a 50% exclusion for entities carrying on activities of general interest on a non-profit basis, subject to an obligation to reinvest the tax saved in their statutory activities. With corporate income tax (IRES) at 24%, this translates into an effective tax charge ranging from approximately 18.7% to 12% for "qualifying" entities.
A non-resident entity without a permanent establishment, by contrast, is currently subject to a final withholding tax of 27% (art. 27, paragraph 3, of D.P.R. n. 600/1973), subject to tax treaties and without prejudice to the possibility of recovering up to eleven twenty-sixths of the withholding tax in respect of tax definitively paid abroad. The legislature has progressively corrected the most conspicuous asymmetries — 1.20% for companies and entities subject to corporate tax in EU/EEA States, 11% for EU/EEA pension funds, and exemption from 2021 for European collective investment undertakings — but there is no specific provision for foreign non-profit entities. The result: on Italian dividends, a charitable trust may pay more than twice as much as a "qualifying" resident foundation.
The EU principle: charitable trusts cannot be discriminated against
This is where EU law demands an answer. Article 63 TFEU prohibits all restrictions on movements of capital — the only fundamental freedom that also applies to third countries — and Article 65 permits differences in treatment only between situations that are not objectively comparable. The Court of Justice has long made clear that philanthropy is no exception: in Stauffer (C-386/04, 14 September 2006), it censured Germany for denying an Italian foundation the exemption available to resident charitable entities; in its judgment in Persche (C-318/07, 27 January 2009), it extended the principle to the deductibility of cross-border donations; and in Emerging Markets (C-190/12, 10 April 2014), it accepted that non-EU entities could also rely on Article 63 where adequate exchange of information was available. There is a single common thread: if the foreign entity is comparable to a domestic entity, residence alone cannot justify a higher tax charge.
Trusts and foundations: purpose matters, not legal form
For trusts, comparability has always been the real battleground. It is not that the institution is unknown to the Italian legal system: Italy has recognised it since ratifying the Hague Convention of 1 July 1985 (Legge n. 364/1989), and the "Dopo di noi" law (Legge n. 112/2016) established its use as an asset protection instrument for people with severe disabilities, consolidating a process of recognition already begun with ratification of the Hague Convention; it is no coincidence that legal scholarship includes charitable trust among the terms to be retained in English because they have no Italian equivalent.
A trust has no formal equivalent in Italian law: if the comparison with a foundation turned on structure, governing bodies, supervision and operating rules, no foreign entity would ever be comparable to a domestic one, because legal forms — the Italian Supreme Court (Corte di Cassazione) observes — "are not, by their nature, universal". Hence the principle set to become a benchmark: comparability "does not presuppose identical forms, but analogous functions".
In functional terms, a charitable trust — a segregated fund dedicated to charitable and public-interest purposes — is precisely what a foundation achieves under Italian law. Indeed, asset segregation is one of the institution's essential features: the assets transferred constitute a separate fund which does not form part of the trustee's own assets; the trustee holds them in a fiduciary capacity and must account for them, administering them in accordance with the rules laid down by the settlor.
What requirements the trust must demonstrate
Two clarifications carry as much weight as the principle itself. First: the tax treatment enjoyed by the entity in its home country is irrelevant; any exemption in the country of residence does not entitle Italy to tax it more heavily than an Italian foundation, because the comparison concerns only the treatment afforded by the source State to residents and non-residents.
Second: holding shares in commercial companies does not turn the entity into a business operator, just as a foundation does not lose its character by investing its assets in shares. There is, however, a caveat: the burden of proof remains with the entity, which must rigorously document — through its governing instrument, certifications from foreign supervisory authorities and the actual use of its income — its charitable nature and non-profit purpose.
After funds, the non-profit sector: the tax barrier falls
Those who follow international taxation will recognise the pattern. In July 2022, in a series of judgments (beginning with nos. 21454 et seq. of 6 July 2022), the Italian Supreme Court (Corte di Cassazione) recognised the right to a refund for US and German investment funds taxed more heavily than Italian funds; in judgment no. 25963/2022, it declared that restricting the reduced 11% withholding tax rate to EU/EEA pension funds was incompatible with Article 63 TFEU, opening the way to equal treatment for comparable non-EU funds; and, through the 2021 Budget Law, the legislature placed European collective investment undertakings on the same footing as domestic undertakings, exempting their dividends.
Charitable entities were the final missing link. The general rule now applies to them too: the State remains free to make its own tax policy choices, but cannot penalise a foreign investor simply for being foreign.
Refunds and planning: what changes for foreign charitable entities
The practical implications are immediate. Foreign charitable entities that have suffered withholding tax on Italian dividends can consider refund claims — generally within the statutory time limit of 48 months from payment, pursuant to art. 38 of d.P.R. n. 602/1973 — and renew their arguments in pending litigation, supported by a robust body of documentary evidence: that is where these cases are won.
For those structuring international philanthropy, the message also removes a constraint: the choice between a charitable trust and a foundation may be guided by private-law and governance requirements, without the foreign vehicle suffering a tax disadvantage at source from the outset. This is all the more relevant because major philanthropic initiatives, often promoted by people with substantial wealth, require flexible legal instruments: alongside trusts and foundations, the Donor Advised Fund is also becoming more widespread in Italy. This is a named philanthropic fund hosted by an "umbrella" foundation and financed through a donation subject to an obligation, allowing resources to be directed towards a specific cause without creating a separate grant-making structure — despite the current absence of specific legislation, apart from certain provisions of the "Dopo di noi" law and the Third Sector Code.
The Third Sector issue
There is, however, a wholly domestic paradox that the case helps to illuminate: while the tax courts look at function, in the Third Sector it is still form that creates a barrier. In circular no. 9 of 21 April 2022, the Ministry of Labour — referring to the approach of the Italian Supreme Court (Corte di Cassazione) in order no. 3986/2021 — ruled out the registration of trusts in the National Single Register of the Third Sector because they lack legal subjectivity: a contested position that excludes them from the reliefs available to Third Sector entities.
One hope remains: that the legislature, as it has already done for funds, will translate the principle into an express provision, so that equal treatment need not be secured case by case. In the meantime, the direction is clear: before the tax authorities, charity is judged by what it does, not by the clothes it wears.
For further information on wealth planning instruments, see the page dedicated to trusts and wealth management.
Frequently Asked Questions
What did judgments nos. 16281 and 16284 of 2026 establish?
That a charitable trust is functionally comparable to a foundation and cannot suffer less favourable tax treatment on dividends in Italy than a resident non-commercial entity. It is now for the court hearing the case on remittal to make the factual findings.
What is the basis for treating trusts and foundations as comparable?
Function, not form: comparability, the Italian Supreme Court (Corte di Cassazione) observes, "does not presuppose identical forms, but analogous functions". A charitable trust is a segregated fund dedicated to charitable and public-interest purposes, which is what a foundation achieves under Italian law.
Is the tax treatment in the entity's country of residence relevant?
No. Any exemption in the country of residence does not entitle Italy to tax the entity more heavily than a domestic foundation, because the comparison concerns only the treatment afforded by the source State to residents and non-residents.
What documents must the foreign charitable entity produce?
The burden of proof remains with the entity, which must rigorously document — through its governing instrument, certifications from foreign supervisory authorities and the actual use of its income — its charitable nature and non-profit purpose.
What is the deadline for claiming a refund of withholding tax?
Generally, within the statutory time limit of 48 months from payment, pursuant to art. 38 of d.P.R. n. 602/1973; it remains possible to renew arguments in pending litigation with a robust body of documentary evidence.
Giancarlo Marzo — Marzo Associati, Law and Tax Firm. Article published in We-Wealth.
