Analysing the Italian legislation on this particular topic, it appears rather evident that the Italian legislator has adopted a far-sighted policy. As a matter of fact, in order to avoid double taxation, the legislator has adopted the exemption method, which apart from being the simplest and most comprehensive between the two methods provided by the Directive, has also provided the shareholders of Italian parent companies with the benefits offered by the EC Directive.

Therefore, the Italian parent company's shareholder may receive the dividends distributed by its subsidiary company in the other Member State, only for that part of the dividends which relates to "relief" income coming from the subsidiary company located in the other EU Member State, without being burdened with equalization tax, although receiving a total tax credit.

The advantage offered by the Italian legislation is evident, as the shareholder may have a tax credit, though it cannot be reimbursed nor transferred to future taxable periods, with regard to income which has never been taxed in Italy. As a result, where the shareholder (being such an individual) produces other types of income, he may have the benefit of such tax credit to reduce the total amount of taxes payable by him in Italy.

It thus follows that in many cases it may be useful for a foreign company to "pass through" Italy in order to be able to control its participations in other companies located in other Member States, thereby benefiting from the combined application of the tax treaties and the "Parent-subsidiary" Directive.

As an example, we take a company having its main office in Portugal (in Madeira) which intends to buy a participation in an USA company. This participation may be held either directly or through the interposition of a holding company resident in Italy.