Article 10 · dividends

- (1) Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

- (2) However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the recipient is the beneficial owner of the dividends the tax so charged shall not exceed:

- (a) 5 per cent of the gross amount of the dividends if the beneficial owner is a company which controls, directly or indirectly, at least 10 per cent of the voting power in the company paying the dividends;

- (b) 15 per cent of the gross amount of the dividends in all other cases.

- This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.

- (3) As long as an individual resident in the United Kingdom is entitled under United Kingdom law to a tax credit in respect of dividends paid by a company which is resident in the United Kingdom, paragraph (2) of this Article shall not apply to dividends paid by a company which is a resident of the United Kingdom to a resident of Italy. In these circumstances the following provisions of this paragraph shall apply:

- (a)

- (i) Where a resident of Italy is entitled to a tax credit in respect of such a dividend under sub-paragraph (b) of this paragraph tax may also be charged in the United Kingdom and according to the laws of the United Kingdom on the aggregate of the amount or value of that dividend and the amount of that tax credit at a rate not exceeding 15 per cent.

- (ii) Where a resident of Italy is entitled to a tax credit in respect of such a dividend under sub-paragraph (c) of this paragraph tax may also be charged in the United Kingdom and according to the laws of the United Kingdom on the aggregate of the amount or value of that dividend and the amount of that tax credit at a rate not exceeding 5 per cent.

- (iii) Except as provided in sub-paragraphs (a)(i) and (a)(ii) of this paragraph dividends paid by a company which is a resident of the United Kingdom to a resident of Italy who is the beneficial owner of the dividends shall be exempt from any tax in the United Kingdom which is chargeable on dividends.

- (b) A resident of Italy who receives dividends from a company which is a resident of the United Kingdom shall, subject to the provisions of sub-paragraph (c) of this paragraph and provided he is the beneficial owner of the dividends, be entitled to the tax credit in respect thereof to which an individual resident in the United Kingdom would have been entitled had he received those dividends, and to the payment of any excess of that tax credit over his liability to United Kingdom tax.

- (c) The provisions of sub-paragraph (b) of this paragraph shall not apply where the beneficial owner of the dividend is, or is associated with, a company which, either alone or together with one or more associated companies, controls, directly or indirectly, 10 per cent or more of the voting power in the company paying the dividend. In these circumstances a company which is a resident of Italy and receives dividends from a company which is a resident of the United Kingdom shall, provided it is the beneficial owner of the dividends, be entitled to a tax credit equal to one half of the tax credit to which an individual resident in the United Kingdom would have been entitled had he received those dividends, and to the payment of any excess of that tax credit over its liability to tax in the United Kingdom. For the purposes of this sub-paragraph, two companies shall be deemed to be associated if one controls, directly or indirectly, more than 50 per cent of the voting power in the other company, or a third company controls more than 50 per cent of the voting power in both of them.

- (d) This paragraph shall not apply if the recipient of the dividend and of the tax credit is not subject to Italian tax in respect thereof.

- (4)

- (a) A resident of the United Kingdom who receives dividends from a company which is a resident of Italy shall — subject to the provisions of sub-paragraph (b) of this paragraph — be entitled, if he is the beneficial owner of the dividends, to the tax credit in respect thereof to which an individual resident in Italy would have been entitled had he received those dividends, subject to the deduction of the tax provided for in sub-paragraph (b) of paragraph (2) of this Article. This provision shall not apply if the recipient of the dividend and of the tax credit is not subject to United Kingdom tax in respect thereof.

- (b) The provisions of sub-paragraph (a) of this paragraph shall not apply where the beneficial owner of the dividend is a company which either alone or together with one or more associated companies controls directly or indirectly 10 per cent or more of the voting power in the company paying the dividend. In these circumstances a company which is a resident of the United Kingdom and receives dividends from a company which is a resident of Italy shall, provided it is the beneficial owner of the dividends, be entitled to a tax credit equal to one half of the tax credit to which an individual resident in Italy would have been entitled had he received those dividends, subject to the deduction of the tax provided for in sub-paragraph (a) of paragraph (2) of this Article and provided that the company receiving the dividend and the tax credit is subject to United Kingdom tax in respect thereof. For the purposes of this sub-paragraph, two companies shall be deemed to be associated if one controls, directly or indirectly, more than 50 per cent of the voting power in the other company, or a third company controls more than 50 per cent of the voting power in both of them.

- (c) Tax credits provided for under sub-paragraphs (a) and (b) of this paragraph shall be deemed to be dividends for the purposes of this Article.

- (5) The provisions of neither sub-paragraph (b) nor (c) of paragraph (3) and neither subparagraph (a) nor (b) of paragraph (4) of this Article shall apply unless the recipient of a dividend shows (if required to do so by the competent authority of the United Kingdom or Italy respectively on receipt of a claim by the recipient to have the tax credit set against United Kingdom or Italian Income Tax respectively chargeable on him or to have the excess of the credit over that Income Tax paid to him) that the shareholding in respect of which the dividend was paid was acquired by the recipient for bona fide commercial reasons or in the ordinary course of making or managing investments and it was not the main object nor one of the main objects of that acquisition to obtain entitlement to the tax credit referred to in sub-paragraph (b) or sub-paragraph (c) of paragraph (3) or in subparagraph (a) or sub-paragraph (b) of paragraph (4) of this Article, as the case may be.

- (6) The term ‘dividends’ as used in this Article means income from shares, ‘jouissance’ shares or ‘jouissance’ rights, mining shares, founders’ shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights which is subjected to the same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident.

- (7) The provisions of paragraph (1) and of paragraphs (2), (3) or (4) of this Article shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such a case the dividends are taxable in that other Contracting State according to its own law.

- (8) Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company, except insofar as such dividends are paid to a resident of that other State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State, nor subject the company’s undistributed profits to a tax on the company’s undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in that other State.

- (9) If the beneficial owner of a dividend, being a resident of a Contracting State, owns 10 per cent or more of the class of shares in respect of which the dividend is paid then the provisions of paragraphs (2), (3) or, as the case may be, (4) of this Article shall not apply to the dividend to the extent that:

- (a) it can have been paid only out of profits which the company paying the dividend earned or other income which it received in a period ending twelve months or more before the relevant date; and

- (b) the shares in respect of which the dividend was paid have not been held for twelve months continuously ending on the date the dividend was declared.

- For the purposes of this paragraph the term ‘relevant date’ means the date on which the beneficial owner of the dividends became the owner of 10 per cent or more of the class of shares in question.

- Provided that this paragraph shall not apply if the beneficial owner of the dividend shows that the shares were acquired for bona fide commercial reasons and not primarily for the purposes of securing the benefit of this Article.