Hi. Italy provides a 26% substitute flat tax for financial income such as dividends and capital gains. In many cases this would reduce the tax compared with the amount one would pay using the IRPEF rates.
In another thread regarding taxes on pensions, JacksterJam mentioned that if a U.S. Citizen pays this tax instead of the IRPEF then the amount would **not** be creditable against U.S. taxes. I gather this is because in the tax treaty under the section describing to which Italian taxes the convention applies, the substitute tax is not listed, but the IRPEF is.
However, in the very next paragraph it states: "The Convention shall apply also to any identical or substantially similar taxes which are imposed by a Contracting State after the date of signature of this Convention in addition to, or in place of, the existing taxes."
I'm guessing that this would also make the substitute tax creditable as well.
Does anyone have any knowledge of this issue, and is anyone aware of any case where the IRS refused to allow payments of the substitute tax to be credited against U.S. taxes?
Thanks.
Dave
