Disposals of Italian real estate-rich companies by non-residents

Article 23(1)(f) TUIR grounds Italian taxation on capital gains realised by non-residents disposing of qualifying (controlling) shareholdings in Italian companies. This differs from Article 23(1-bis) TUIR, which instead targets disposals of interests in non-resident entities deriving their value mainly from Italian real property. Here the vehicle is Italian, not foreign: a distinction that defines the scope of the analysis.

Exclusion from the 26% substitute tax (Article 5, Legislative Decree 461/1997) is not automatic; it hinges on the applicable double taxation convention (DTC) with the transferor's state of residence.

Most Italian treaties follow the OECD Model's Article 13. Paragraphs 1 and 2 grant concurrent taxing rights over immovable property and permanent-establishment business assets, while paragraph 3 covers ships and aircraft. A residual clause (paragraph 4 in Italian treaties, 5 in the OECD Model) reserves exclusive taxing rights to the state of residence for everything else. Share disposals fall here, as confirmed by OECD Commentary on Article 13, paragraph 30. Consequently, Italy typically loses the right to tax the non-resident seller.

Could shareholdings in real estate companies instead fall under paragraph 1? Generally no. Treaty definitions of immovable property (mirroring Article 6(2)) cover buildings, land, and rights in rem, not shares – even where the company's assets are predominantly real estate. The corporate vehicle acts as a screen that treaties do not normally look through. A notable exception is the US treaty: its protocol (Article 1(12)) assimilates shares in predominantly real-estate companies to Italian immovable property. Confirmed by the Italian Revenue Agency in Ruling No. 175/2025, this remains treaty-specific, not generalisable.

The permanent-establishment route does not help either: settled case law and practice hold that a passive real estate holding, absent structured business activity, is not a permanent establishment.

This outcome stems not from policy but from inertia: Italy signed the base erosion and profit-shifting (BEPS) multilateral instrument (MLI) in 2017 but never ratified it domestically. The MLI's look-through clause would give the source state concurrent taxing rights over disposals of shares in property-rich companies. Because treaty modification requires ratification by both parties, Italy cannot benefit from the MLI even where its treaty partners have ratified it. The system stays frozen, and non-residents continue to enjoy treaty exemption on gains from Italian real estate companies.

Closing this gap, which undermines the coherence of the Italian tax system, requires either completing MLI ratification or renegotiating the individual treaties concerned.

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Roberto M. Cagnazzo, Founding Partner, is a chartered accountant and statutory auditor with considerable experience in domestic and international taxation acquired as Head of Tax in some of Italy’s leading multinational groups, and as Professor of Comparative Tax Systems and of Tax Law at the University of Turin.