Italy has entered in bilateral agreements with many foreign countries, within and outside EU, to avoid double taxation on income and property. These agreements establish the range of the power to set taxes of the two States, thus regulating the tax processing of each category of income.
Depending on the categories involved, these agreements plan the possibility for both States to tax the same income (concurrent taxation) or, sometimes, the exclusive taxation by one State only.
The rule established for the main categories of income (dividends, interest, royalties) states that, barring some exceptions, the beneficiary pays tax in the country of residence, but also allows the State where the subject making the payment (source country) is resident to levy taxes thereon, but within well-defined limits. These limits have fixed rates which, in most cases, are lower than those in force on a national level.
The rules established by the agreement provide, upon request by the tax payer, the right to be refunded by the source country of any paid tax, in case it exceeds the amount established by the agreement, or, sometimes, the right to have the expected benefit immediately applied, already when the tax is deducted.
The competent authorities of the two countries can agree on specific ways of refund or of direct application of the agreement, consisting in the adoption of specific forms.
The forms so far agreed concern the application of conventional reductions for the most important categories of income: dividends, interest and royalties. The forms, formulated in two or more copies, along with a copy for the beneficiary, include the statements issued by the beneficiary according to the requirements of the agreement. They also have a part concerning the attestation of residence, to be filled in by the tax authorities of the country of residence.
On the basis of the existing law, there is no specific obligation to use the agreed forms in place of an informal application for refund. The forms, deriving from a specific understanding between the two contracting States, aim at avoiding problems of an operative nature and thus facilitate those entitled.
Furthermore there are forms drawn up unilaterally by the foreign tax authorities which can equally be used to facilitate operations.