IRAP Refund on EU Dividends: perspectives under the 2026 Budget Law

Introduction

The 2026 Budget Bill aims to implement the Mediolanum ruling of the Court of Justice of the European Union (CJEU, 1 August 2025). The ruling looked at the IRAP regime applicable to banks, financial intermediaries and insurance companies and how compatible it is with the Parent-Subsidiary Directive. The Bill seeks both to adapt the regime for the future and, with respect to the past, to recognise the right to a refund or a special form of compensation.

The CJEU stated that the Parent-Subsidiary Directive applies to any tax whose taxable base consists, in whole or in part, of dividends originating in the EU (including the Italian IRAP, with specific reference to banks, financial intermediaries and insurers). Secondly, the court found that the Italian IRAP regime was incompatible with EU law as it required the inclusion of EU-source dividends in the taxable base of banks and financial intermediaries at 50% of their amount, which exceeds the limits of taxability permitted by the Directive, which is only up to 5%.

Following the CJEU ruling, many banks, financial intermediaries and insurance companies have filed (or are currently filing) claims for reimbursement of the excess IRAP unduly paid to the tax authorities.

 

Remedies available for the refund

In light of these European rules and principles, the Italian legislator, through the draft Budget Law, intends to act on two fronts: for the future, by amending the IRAP rules applicable to banks, financial intermediaries and insurance companies to bring them into line with European requirements; for the past, by expressly recognising the right to a refund of the excess IRAP unduly paid, subject to the timely submission of a refund claim.

Article 17(1)(a) and (b) of the draft Budget Law provides that, where the requirements laid down in the Parent-Subsidiary Directive (as implemented by Article 27-bis of Presidential Decree No. 600/1973) are met, dividends received by financial intermediaries and insurance companies from subsidiaries resident in other EU member states will be excluded from the IRAP tax base for 95% of their amount.

Pursuant to paragraph 2 of the same article, this provision will apply from the tax period ending on 31 December 2025. So the future regime will be aligned with the Directive, limiting the inclusion of intra-EU dividends in the IRAP tax base to 5% of their amount.

 

Provisions governing the past

The most noteworthy provisions concern the past – namely, the mechanisms for recovering amounts already paid in excess during previous tax periods.

Under paragraph 3 of Article 17, taxpayers are entitled to reimbursement of the amounts already paid, provided that the limitation period set out in Article 38 of Presidential Decree No. 602/1973 (ie 48 months from payment) is observed.

As an alternative to reimbursement by the Revenue Agency, paragraph 4 allows taxpayers, at their discretion, to offset refundable amounts against the substitute tax referred to in Article 20 of the same Bill. This is proposed to release the reserves referred to in Article 26(5-bis) of Decree-Law No. 104/2023 (a substitute tax at a rate of 27.5% for the release (affrancamento) of reserves existing at the end of the current financial year on 31 December 2025 and 33% for the release of reserves existing at the end of the following financial year).

 

Purpose and interpretation

The right to reimbursement of taxes paid and then deemed inconsistent with EU law is a consequence of EU law itself. In this sense, Article 17(3) of the draft finance bill merely reiterates a principle already implicit in the legal system.

It could be argued that, through this provision, the legislator simply intended to ensure that the tax authorities proceed with the refund, avoiding unnecessary litigation.

By expressly providing for the right to a refund or to special compensation through the substitute tax referred to in Article 20, the legislator seems to be attempting to define the remedies available to taxpayers to recover unduly paid amounts. If this interpretation were correct, taxpayers would be precluded from using alternative mechanisms, in particular supplementary tax returns (dichiarazione integrativa).

 

Conclusion

The legislator’s effort to comply with the CJEU’s Mediolanum ruling is certainly commendable.

However, it remains to be clarified whether the provision constitutes merely confirmation and acknowledgment of the right to reimbursement, or whether it represents a measure limiting the procedural instruments available to taxpayers – in particular, by excluding the possibility of filing a supplementary tax return. The implications would be significant: refund claims are subject to a limitation period of 48 months while supplementary tax returns are governed by the longer time limits applicable to tax assessments by the authorities (i.e. until 31 December of the fifth year following the year in which the original return was filed).