Cross-Border Financing of Italian Subsidiaries
and Corporate Dissolutions

• Andrea Lovisatti

DISCLAIMER: The information here provided is for general informational purposes only and does not constitute legal, tax, or financial advice. Readers should not act upon this content without seeking professional counsel specific to their circumstances. No attorney–client relationship is established by viewing or using this material. While efforts are made to ensure accuracy, no guarantee is provided regarding completeness or currentness of the information presented.

Executive summary

This article is addressed to Chief Financial Officers and treasury executives of multinational groups who provide financial support to their Italian subsidiaries — through shareholder loans, informal capital contributions, or formal equity injections. Italy's regulatory framework governing such arrangements is materially more complex than it may appear from a parent-company perspective, and the consequences of structural or compliance gaps can be severe, particularly if and when the Italian subsidiary enters financial distress or is wound down.

The following points summarise the key issues that any foreign CFO must understand before advancing funds to an Italian entity.

1. Introduction

The dissolution of an Italian company represents a pivotal moment where all historical intercompany financing arrangements, compliance gaps, and unresolved issues inevitably surface, often under intense scrutiny from tax authorities, creditors, and courts. Under Article 2484 of the Italian Civil Code, dissolution can be triggered by events such as the expiry of the company's term, the impossibility of achieving its purpose, a shareholder resolution, or capital reduction below legal minima. This initiates the liquidation phase (voluntary or judicial), during which liquidators are appointed to inventory assets, settle debts, and distribute any surplus — culminating in cancellation from the Companies Register.

In this context, intercompany loans become particularly critical. Subordination under Article 2467 of the Civil Code is strictly enforced, relegating shareholder claims (including from foreign parents) behind third-party creditors, and potentially rendering repayment impossible in distressed scenarios. Waiver of these loans is often essential to streamline the balance sheet, facilitate asset sales, and enable an orderly closure, but incorrect tax treatment can lead to severe consequences, including unexpected IRES/IRAP liabilities, penalties up to 90% of adjustments, or even clawback actions in judicial liquidation.

Building on the waiver rules outlined in later sections, during dissolution the tax-neutral treatment of principal waivers (as capital contributions per Article 88 TUIR) assumes heightened importance — provided anti-abuse documentation is in place. Accrued interest waivers trigger withholding tax via constructive receipt, and any income realised during liquidation is subject to standard corporate taxation, with distributions to shareholders potentially taxed as dividends if exceeding contributed capital. Transfer pricing documentation from prior years will be audited to defend interest rates and deductions, while reporting obligations (e.g., CbCR for large groups) persist.

Foreign CFOs should view dissolution not as an endpoint but as a stress test of the entire financing structure. Early planning — including potential advance rulings from the Agenzia delle Entrate — is critical to minimising disruptions and tax exposure. Many of the risks that crystallise at dissolution originate from the original choice and structuring of intragroup financing.

In the context of intragroup financial support, a parent company may provide funds to its Italian subsidiary through formal capital contributions, informal capital contributions, or shareholder loans, each carrying distinct legal and tax consequences. A formal capital contribution involves increasing the subsidiary's statutory share capital, requiring compliance with corporate laws such as shareholder approval and registration with the Companies Register, thereby strengthening the equity base. Informal capital contributions represent funds infused without formalising as debt, often recorded as equity loans or similar instruments; these typically do not generate interest expense but may have limited legal protections compared to formal equity. Shareholder loans are debt instruments subject to repayment and interest, but under Italian law — especially Article 2467 — they may be subordinated to third-party creditors during insolvency and must comply with transfer pricing and interest deduction rules.

The choice of funding form significantly affects corporate governance, creditor rights, and tax treatment, underscoring the need for careful structuring and documentation of intragroup financial support.

2. Civil Law Framework: Shareholder Loans under the Italian Civil Code

The Italian Civil Code, at Article 2467, expressly regulates shareholder loans to limited liability companies (S.r.l.), providing specific protection for company creditors. The law establishes that repayment of loans granted by shareholders is subordinate to the satisfaction of other creditors, particularly if the loans are granted when the company's leverage is excessive or when the company is in financial distress.

Although the provision formally applies only to S.r.l.s, doctrine and case law recognise its analogous application to joint-stock companies (S.p.A.), especially when shareholders exercise dominant influence or there is a unitary control structure.

The subordination regime under Article 2467 has been reinforced and expanded by the Italian Crisis and Insolvency Code (D.Lgs. 14/2019, as amended — the "CCII"), which entered into full force on 16 July 2022. Article 214 of the CCII expressly confirms that shareholder loans rank below ordinary creditors' claims in insolvency and restructuring proceedings. Given the Code's emphasis on early crisis detection (Articles 3 and 377) and directors' duties in distress situations, proper classification of intragroup financing becomes even more critical: loans provided during financial difficulty may be recharacterised as equity, affecting both creditor ranking and potential director liability for mismanagement.

A further material legislative development is the second corrective decree, D.Lgs. 136/2024 (in force from 28 September 2024), which amended several provisions of the CCII relevant to corporate distress, including rules on the composizione negoziata della crisi, protective measures, and the ranking of claims in insolvency. Foreign CFOs dealing with Italian subsidiaries in or near financial distress should ensure their advisors are working from the post-2024 version of the Code.

Within international groups, loans from a foreign parent to an Italian subsidiary may thus qualify as shareholder loans under Article 2467, particularly when the Italian subsidiary's financial position renders the loan effectively equivalent to a disguised capital contribution.

3. Corporate Resolutions for Loans from a Non-Resident Parent

When a foreign parent company provides a loan to its Italian subsidiary, it is highly recommended that the parties formalise the transaction in writing and execute the corporate resolutions required under Italian law. Even if the loan does not involve capital increases, the board of directors or shareholders' meeting should formally approve the transaction to ensure transparency, traceability, and legality, protecting both shareholders and company creditors.

Resolutions may include the following elements.

Such resolutions protect the company from internal or external challenges and provide key evidence in case of tax audits, especially regarding interest rate determination and deductibility.

4. Tax Considerations: Classification and Arm's Length Principle

From a tax perspective, shareholder loans — particularly cross-border intragroup loans — require attention to: (a) the interest rate determination; and (b) the taxation of interest in Italy, including potential withholding tax.

4.1 Interest Rate Determination

Interest rates must comply with the arm's length principle, under Article 110(7) of the Italian Income Tax Code (TUIR) and the OECD Transfer Pricing Guidelines. The rate must reflect what independent parties would have agreed under comparable conditions. The Italian Revenue Agency (Agenzia delle Entrate) recommends transfer pricing methods, such as the Comparable Uncontrolled Price (CUP) method, or, if unavailable, reference rates consistent with the borrower's credit rating, loan duration, and market conditions.

Non-arm's length interest rates may lead to taxable income adjustments: rates that are too low may be challenged as under-remuneration to the lender, while rates that are too high may limit the deductibility of interest expenses at the Italian subsidiary level.

4.2 Interest Deductibility Cap (Article 96 TUIR)

Interest expenses are deducted on an accrual basis, irrespective of actual payments. However, deductibility is subject to a statutory limitation under Article 96 of the Italian Income Tax Code. Specifically, net interest expense — defined as interest expense minus interest income — is deductible up to 30% of the borrower's Tax-Adjusted EBITDA (the so-called ROL, or reddito operativo lordo), plus the amount of interest income recognised in the same period.

Tax-Adjusted EBITDA is determined on a tax basis and, among other adjustments, excludes dividends from foreign subsidiaries. Any excess net interest expense is non-deductible in the current fiscal year but can be carried forward indefinitely to subsequent years, where it can be deducted subject to the same yearly limitation. This provision aims to curb excessive interest deductions and aligns with EU anti-tax avoidance rules (ATAD Directive). It is crucial for groups to model this limitation when structuring shareholder loans.

5. Transfer Pricing Documentation Requirements

Beyond determining an arm's length interest rate, Italian companies receiving shareholder loans from foreign parent companies must comply with specific transfer pricing documentation obligations under Article 1, paragraphs 6 and 7, of Legislative Decree 471/1997, as amended.

Italian transfer pricing rules require companies to maintain contemporaneous documentation demonstrating the arm's length nature of intragroup transactions, including financial transactions. This documentation must be prepared by the tax return filing deadline and must be made available to the Italian Revenue Agency upon request during tax audits.

5.1 Required Documentation

For shareholder loans, the documentation typically includes the following elements.

An important practical note: the 2022 OECD Transfer Pricing Guidelines (Chapter X — Financial Transactions) provide detailed guidance on the arm's length pricing of intragroup loans, cash pooling, financial guarantees, and captive insurance. This is the current benchmark used by the Agenzia delle Entrate in audits of financial transactions. Italian practitioners should ensure their benchmarking studies are consistent with Chapter X, which introduced a specific framework for the accurate delineation of financial transactions.

5.2 Consequences of Insufficient Documentation

The burden of proof rests on the taxpayer. In the absence of adequate documentation, the Italian Revenue Agency may challenge the interest rate and make adjustments to taxable income, potentially triggering additional IRES (corporate income tax at 24%), IRAP (regional production tax), penalties up to 90% of the additional tax due, and interest on late payment. Penalties may be reduced to a minimum of 10% if adequate transfer pricing documentation is provided.

For small and medium enterprises that do not meet the Masterfile threshold, maintaining at least a simplified National documentation with a basic comparability analysis is strongly recommended as a defensive measure.

5.3 Advance Pricing Agreements (APAs)

Since 2010, Italian law has provided for the possibility of entering into Advance Pricing Agreements with the Italian Revenue Agency under Article 31-ter of Presidential Decree 600/1973. An APA allows taxpayers to obtain advance certainty on the transfer pricing methodology for intragroup transactions. Bilateral or multilateral APAs — negotiated through mutual agreement procedures with treaty partners — are particularly valuable for complex financing arrangements, as they provide protection from double taxation and reduce audit risk in both jurisdictions. The APA procedure typically takes 18 to 24 months and requires comprehensive documentation, but can be a worthwhile investment for material and recurring intragroup loans.

6. Withholding Tax on Interest, EU Directive, and Double Taxation Treaties

Interest paid by an Italian company to a foreign company is generally subject to withholding tax under Article 26(5) of Presidential Decree 600/1973, at a standard rate of 26%. Reduction or exemption depends on: (a) the existence of a Double Taxation Treaty (DTT) between Italy and the recipient's country; (b) for EU intragroup loans, the application of the domestic exemption regime under Article 26-quater of DPR 600/1973, which transposed EU Directive 2003/49/EC on the common system of taxation applicable to interest and royalty payments between associated companies of different Member States; and (c) for certain institutional lenders, the specific exemption under Article 26(5-bis) of DPR 600/1973.

Important Clarification: EU Directive 2003/49/EC
Directive 2003/49/EC has NOT been repealed and remains in force as of the date of this article. Its transposition into Italian law, Art. 26-quater DPR 600/1973, continues to apply. Any reference to its repeal is incorrect. Proposed EU legislation (including BEFIT and related initiatives) has not yet replaced this Directive.

6.1 Double Taxation Treaties

Italy's Double Taxation Treaties are based on the OECD Model Convention and typically address interest in Article 11, allowing primary taxation in the recipient's residence country while permitting limited source-country withholding (often 0–10%), provided the recipient is the beneficial owner of the interest. Italy has also adopted the OECD Multilateral Instrument (MLI), which has modified certain treaties through the introduction of the Principal Purpose Test (PPT) and other anti-avoidance provisions.

When a foreign parent company provides a loan to its Italian subsidiary, the Italian company must verify: the parent's tax residence; its status as beneficial owner of the interest; and the possession of a valid certificate of tax residence. If these conditions are satisfied, withholding may be reduced under an applicable DTT.

6.2 EU Interest and Royalties Directive (Art. 26-quater DPR 600/1973)

For qualifying intragroup payments within the EU, the domestic exemption under Article 26-quater of DPR 600/1973 may eliminate withholding entirely. The recipient must: be a company tax resident in an EU member state; hold one of the legal forms listed in the legislative annex; be subject to corporate income tax without exemption; and be the beneficial owner of the interest. The requirement of beneficial ownership has been significantly developed by EU case law (the 'Danish cases' of the Court of Justice, C-115/16 et al., 2019), which aligned the concept with the EU general principle against abuse of law.

6.3 Exemption for Institutional Lenders (Art. 26(5-bis) DPR 600/1973)

A further important exemption — often overlooked — is available under Article 26(5-bis) of DPR 600/1973. This provision eliminates the 26% withholding tax on interest arising from medium- and long-term loans to Italian businesses made by: EU-established credit institutions; entities identified in Article 2(5)(4)-(23) of Directive 2013/36/EU; EU-authorised insurance companies; and foreign institutional investors (as defined under Article 6(1)(b) of D.Lgs. 1 April 1996, no. 239), even if the latter lack legal personality for tax purposes.

This exemption is practically significant for groups that use a treasury entity or a group finance company that qualifies as an institutional investor, as it may provide a withholding-free route without requiring reliance on a DTT or the EU Directive.

7. Loan Waivers in Restructuring Scenarios — Legal and Tax Implications

A foreign parent may be in the position of waiving its loan claim against the Italian subsidiary — most commonly during financial distress or as part of an orderly wind-down. The tax consequences are primarily governed by Article 88 of Presidential Decree 917/1986 (TUIR — Italian Income Tax Code).

7(a)(i) Anti-Abuse Rule: Article 88(4-bis) TUIR

Legally, the waiver can take different forms: (i) a capital contribution or grant to strengthen the subsidiary's equity; or (ii) a pure debt remission. Regardless of the legal form, a waiver of the loan principal should generally be treated as a capital contribution in the hands of the Italian beneficiary and should therefore be tax-neutral (no taxable income arises). For the parent company, the tax treatment of the waiver follows the rules of the parent's jurisdiction and is usually deductible as a capital loss or non-recurring expense.

7(a)(i) Anti-Abuse Rule: Article 88(4-bis) TUIR

As an anti-abuse measure introduced in Italy in 2015 (D.Lgs. 147/2015), Article 88(4-bis) of the TUIR stipulates that a shareholder's waiver of credits towards the Italian subsidiary constitutes extraordinary taxable income for the portion exceeding the credit's adjusted tax basis at the shareholder level. To determine this, the shareholder — typically the foreign parent — must formally communicate the adjusted tax basis to the subsidiary. In the absence of such communication, the adjusted tax basis is deemed zero, rendering the entire waived amount taxable for the subsidiary at the 24% IRES rate.

7(a)(ii) AIDC Norma di Comportamento 232/2025 and the Non-Resident Waiver

A significant interpretive development arose with the publication of AIDC Norma di Comportamento n. 232, dated 9 October 2025. The AIDC (Associazione Italiana Dottori Commercialisti) took a clear position: Article 88(4-bis) TUIR does not apply to waivers by non-resident shareholders, where the credit originated with and remained with the non-resident shareholder, because the provision has an 'inherently domestic vocation' — it was designed to prevent tax asymmetries between Italian entities only. As a consequence, the Italian subsidiary would not recognise any taxable windfall income, and the foreign parent would not need to provide the certified adjusted tax basis declaration.

However, this position is not endorsed by the Agenzia delle Entrate. Prior Revenue Agency guidance (Interpello responses n. 887 of 30 December 2021 and n. 138 of 21 March 2022) takes the opposite view: Art. 88(4-bis) applies also to non-resident shareholders, and in the absence of the certified declaration, the entire waived amount is taxable. Until the Revenue Agency formally revises its position or legislation is clarified, the risk of challenge remains real and the conservative approach — obtaining and providing the certified declaration — remains advisable for non-resident parents that have had any credit impairments or write-downs in their home jurisdiction.

7(b) Accrued Interest

If the loan agreement provided for interest that has accrued but has not yet been paid at the moment of the waiver, the treatment is governed by Article 88(3)(b) TUIR in conjunction with Article 109 TUIR: the waiver of such interest generates taxable income for the Italian company under ordinary rules.

7(b)(i) Withholding Tax  the Constructive Receipt Doctrine

From a withholding-tax perspective, the waiver of accrued interest triggers a 26% withholding tax obligation under Article 26(5) DPR 600/1973, as the amount is deemed constructively received by the parent via the incasso giuridico (constructive receipt) doctrine — established by Ministry of Finance Circular n. 73/E/1994 and confirmed in more recent administrative and judicial practice (see Cass. n. 2057/2020 and Tax Court n. 4091/2017). The Italian subsidiary must withhold and remit as if actual payment occurred, even without any cash flow.

7(b)(ii) Recent Judicial Developments

However, the Supreme Court of Cassation (Sezione Tributaria), in its judgment no. 16595 of 2023, introduced a notable qualification, aligning itself with prevailing academic opinion (including AIDC Norma di Comportamento 201/2018): the Court held that a shareholder's waiver of a credit does not generate taxable income (sopravvenienza attiva) at the level of the Italian company, at least in cases where the credit does not relate to income that has already been taxed at the shareholder level. This is a significant development that partly overlaps with but does not fully resolve the withholding tax question. The Revenue Agency has continued to assert withholding obligations based on the constructive receipt doctrine despite this ruling. The practical landscape therefore remains uncertain, and companies dealing with material accrued interest waivers should seek advance guidance from the Agenzia delle Entrate if amounts are significant.

8. Additional Reporting Obligations

Certain ancillary reporting obligations may apply depending on the size of the group and the amount of the financing.

These obligations are compliance checklist items rather than rules that affect the substance of the financing structure, but failure to comply can generate penalties independent of the underlying tax treatment.

9. Concluding Remarks

Shareholder loans from foreign parent companies to Italian subsidiaries are subject to increasingly stringent scrutiny by Italian tax authorities, with dissolution serving as the ultimate point where past oversights — such as inadequate documentation or improper waivers — can result in significant financial and legal repercussions. The interaction between civil law subordination rules (Article 2467 Civil Code and Article 214 CCII), transfer pricing requirements (Article 110(7) TUIR), interest deduction limitations (Article 96 TUIR), and withholding tax obligations creates a multi-layered compliance framework where proper documentation and arm's length compliance are not merely advisable but essential.

Transfer pricing documentation deserves particular emphasis: the burden of proof rests entirely on the taxpayer, and inadequate documentation can trigger penalties up to 90% of additional taxes due. Companies must maintain contemporaneous records — including functional analysis, benchmarking studies consistent with OECD Chapter X on Financial Transactions (2022 Guidelines), and creditworthiness assessments — prepared before the tax return filing deadline, not in response to an audit.

Loan waivers require equally careful attention. While principal waivers may be tax-neutral, the anti-abuse provisions of Article 88(4-bis) TUIR create potential tax liabilities that must be carefully managed through timely certification of the credit's adjusted tax basis. The evolving doctrinal position on non-resident shareholders (AIDC 232/2025) offers a potentially significant exception, but should not be relied upon without legal advice given the Revenue Agency's contrary position. On accrued interest, the constructive receipt doctrine continues to apply in the Revenue Agency's view, notwithstanding positive judicial developments.

Looking forward, Italian subsidiaries and their foreign parents should adopt a proactive compliance strategy that includes the following elements.

Cross-border intragroup financing is a legitimate and efficient tool for group treasury management, but it demands technical competence, rigorous documentation, and an integrated approach that considers civil law, corporate governance, and tax implications from the outset. The cost of proper structuring and documentation is invariably lower than the cost of defending an inadequate structure during a tax audit.

References and Legislative Sources

Italian Legislation

[1] Codice Civile Italiano, artt. 2467, 2484 (shareholder loans; dissolution of companies).

[2] D.Lgs. 14/2019 (Codice della Crisi d'Impresa e dell'Insolvenza — CCII), as amended, art. 214 (subordination of shareholder loans in insolvency). In force from 16 July 2022.

[3] D.Lgs. 136/2024 (Secondo Correttivo CCII), in force from 28 September 2024.

[4] D.P.R. 917/1986 (TUIR — Testo Unico delle Imposte sui Redditi), artt. 88 (sopravvenienze attive), 88(3)(b) (waiver of accrued interest), 88(4-bis) (anti-abuse rule for shareholder waivers), 96 (limitation of interest deductibility / ROL), 109 (accrual principle), 110(7) (arm's length principle / transfer pricing).

[5] D.P.R. 600/1973, art. 26(5) (26% withholding on interest to non-residents); art. 26(5-bis) (exemption for EU credit institutions and institutional investors); art. 26-quater (EU Interest and Royalties Directive transposition, implementing Directive 2003/49/EC); art. 31-ter (Advance Pricing Agreements).

[6] D.Lgs. 471/1997, art. 1, commi 6–7 (transfer pricing documentation obligations and penalties).

[7] D.Lgs. 147/2015, art. 13, comma 1, lett. a) (introduction of art. 88(4-bis) TUIR).

[8] D.Lgs. 100/2020 (DAC6 transposition — mandatory disclosure of cross-border arrangements).

EU Legislation

[9] EU Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States. In force; not repealed.

[10] EU Council Directive 2016/1164/EU (ATAD — Anti-Tax Avoidance Directive), as amended by 2017/952/EU (ATAD II). Basis for Italian Art. 96 TUIR interest limitation rule.

[11] Directive 2011/96/EU (Parent-Subsidiary Directive).

[12] Directive 2013/36/EU (CRD IV — Capital Requirements Directive), art. 2(5)(4)-(23), referenced in art. 26(5-bis) DPR 600/1973.

OECD

[13] OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (2022 edition), Chapter X — Financial Transactions. Primary reference for benchmarking intragroup loans, cash pooling, guarantees and captive insurance.

[14] OECD Model Tax Convention on Income and on Capital (2017 edition), art. 11 (Interest).

[15] OECD Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI), in force for Italy.

Italian Revenue Agency Guidance

[16] Circolare Ministeriale n. 73/E/1994 (Ministry of Finance): established the incasso giuridico (constructive receipt) doctrine for interest waivers.

[17] Risposta a interpello n. 887, 30 December 2021 (Agenzia delle Entrate): Art. 88(4-bis) TUIR applies to non-resident shareholders; certified declaration required.

[18] Risposta a interpello n. 138, 21 March 2022 (Agenzia delle Entrate): confirmed position in [17]; absent declaration, adjusted tax basis deemed zero.

[19] Risposta a interpello n. 59, 3 March 2025 (Agenzia delle Entrate): constructive receipt doctrine applicable to waiver of dividends by non-entrepreneurial individual shareholders.

[20] Risposta a interpello n. 182, 8 July 2025 (Agenzia delle Entrate): waiver of dividends by non-entrepreneurial individual shareholder does not generate sopravvenienza attiva for the company.

Case Law — Italian Courts

[21] Corte di Cassazione, Sezione Tributaria, 30 October 2019, n. 21532: waiver of accrued interest generates taxable income (sopravvenienza attiva) for the Italian company.

[22] Corte di Cassazione, n. 2057/2020: confirmed constructive receipt doctrine for purposes of withholding tax on waived interest.

[23] Commissione Tributaria Provinciale, n. 4091/2017: confirmed application of incasso giuridico doctrine to waived accrued interest.

[24] Corte di Cassazione, Sezione Tributaria Civile, n. 16595/2023: significant qualification of earlier jurisprudence; held that a shareholder's waiver of a credit does not in principle generate taxable sopravvenienza attiva at the company level; aligned with prevailing academic opinion.

[25] Corte di Cassazione, Sezione Tributaria Civile, n. 26640/2024: further development of beneficial ownership criteria under the EU Interest and Royalties Directive.

EU Case Law

[26] Court of Justice of the European Union, Joined Cases C-115/16, C-118/16, C-119/16, C-299/16 and others (the 'Danish cases'), 26 February 2019: beneficial ownership concept under EU Directive 2003/49/EC aligned with the EU general principle against abuse of law.

Doctrinal / Professional Guidance

[27] AIDC (Associazione Italiana Dottori Commercialisti), Norma di Comportamento n. 201/2018: waiver of credit by shareholder does not generate taxable income for the company.

[28] AIDC, Norma di Comportamento n. 232, 9 October 2025: Art. 88(4-bis) TUIR does not apply to waivers of credits by non-resident shareholders where the credit originated with and remained with the non-resident shareholder; certified declaration not required in such cases.

DISCLAIMER: This article is for general informational purposes only and does not constitute legal, tax, or financial advice. The information presented reflects the state of Italian and EU law as of April 2026 and may not account for subsequent developments. Readers should not act upon this content without seeking professional counsel specific to their circumstances. No attorney–client or advisor–client relationship is established by reading or using this material. While efforts are made to ensure accuracy, no guarantee is provided regarding completeness or currentness. Tax laws and administrative interpretations are subject to change; always verify with qualified Italian tax professionals before taking any action.