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Taxation of trusts in Italy: new developments

Taxation of trusts in Italy: new developments
The Italian Tax Authorities published a discussion Draft Circular Newsletter on the Taxation of Trusts in Italy: New Developments, to practitioners and institutions. Our Firm is contributing  to these  discussions with our views and experience,   to further establish the use of Trusts in Italy for the benefit of clients who are resident in Italy or abroad.


On August 11th  2021 the Tax Authorities released  the long-awaited draft version  of the document on trust taxation in Italy. The draft version (“Circular Newsletter Draft”) covers a wide spectrum of issues related to trusts’ direct and indirect taxation, opening a public consultation until September 30th, 2021.

The Circular Newsletter Draft focuses on the following items:

A. Income distributions by foreign opaque trusts

B. Indirect taxation

C. Tax Monitoring obligation for Italian tax residents

D. Wealth Taxes (IVAFE and IVIE) for Italian tax resident trusts


It is worth underlining that interesting positions emerge from the Circular Newsletter Draft, although some issues are only touched on without going into further detail.

The Circular Newsletter Draft starts with a juridical overview of the trust, confirming the views that the tool is not only lawful in Italy, because of the Hague Convention, but also deemed to be highly regarded among the juridical instruments related to  estate and succession planning.

Their views on  the role of settlors, trustees, protectors and beneficiaries are clearly stated and fully compatible with  current best practices. They cite   Law 30 September 2005 n. 273 on the “Atti di destinazione” (art. 2645-ter of the Italian Civil Code) within the concept of International Private Law, confirming that Italy is  a friendly jurisdiction when it comes to  trusts.


A – Income distributions by foreign opaque trusts

From 2007,  trusts are taxable entities in Italy (art. 73 of the Italian Consolidated Tax Act– dpr n°917/1986 (“ITCA”)) and subject to IRES ( corporation tax). Within the general rules, in 2019 a relevant law amendment entered into force on the income paid to Italian tax resident beneficiaries of foreign trusts (and similar institutions).

According to article 47-bis of ITCA income distributed by trusts established in States that are considered low tax jurisdictions qualifies as income from capital, and the beneficiaries are taxed upon distribution.

For further information regarding  these rules that emerged from Law Decree 124/2019, please refer to my article on Trusts&Trustees (Oxford University Press)[1]. The Tax Authorities on this issue specify that the reference to “establishment” in “low tax” jurisdiction shall be made to the applicable criteria to identify tax residence set forth by the relevant local jurisdiction, as opposed to the criteria set forth by Italian tax law. Furthermore, the Italian Authorities, for the purpose of Law Decree 124/2019, qualify a “low-tax” jurisdiction and look to the nominal level of taxation applicable to the trust income. If this (effective) taxation is less than 50 per cent of the applicable Italian rate than is treated as an income distribution to the Italian resident beneficiary.

The Circular Newsletter Draft is clear: as the  nominal IRES rate in Italy is  24%, any trust on which income is taxed at less than 12% is to be classified as being from a “low-tax” jurisdiction for Italian tax purposes. The Tax Authorities concede that for certain categories of income (e.g. financial income from savings and capital gains) the effective rate in Italy is 26% and therefor 13% is the threshold. Furthermore, they clarify that the effective taxation must be taken as a reference and by this they also highlight  some examples on trusts where one of the trustees is from the United Kingdom or  in the case of EU/EAA jurisdictions where the “low-tax” effect is perceived anyway (e.g. Cyprus).

The Tax Authorities further clarify  the issue surrounding the effective place of management of the trustees and the special relevant local legislations. It is pointed out that taxpayers are not allowed to request advance tax rulings to the tax authorities in order to demonstrate that the creation of an opaque trust is not aimed at localizing a given income in a low-tax jurisdiction. Assessment is therefore strongly suggested on existing and new structures.

The presumptions in the Law Decree 124/2019 are further explained. The Italian  Tax Authorities state that both trust and trustees shall provide specific (Italian) accounting records  to demonstrate whether a distribution to a beneficiary is paid out of capital or income. A specific section is dedicated to foreign transparent trusts, taking a (draft) position on the current debate among Italian practitioners. The definition of a transparent trust is one where a beneficiary is entitled to receive an income of the trusts. If the trust is not transparent (for Italian tax rules), therefore it is opaque[2].

The Circular Newsletter Draft cites circular n. 48/E of 6th August 2007 to confirm the meaning of “vested beneficiary” (beneficiario individuato) for the purpose: it is a beneficiary of assigned income (reddito individuato). As already stated several times in the guidelines, and by me, via several articles and contributions in the past years in order to have a transparent trust it is necessary that the beneficiary has a juridical right to claim from the trustee to be the assignee of that specific income.

The Tax Authorities clarify their views by stating that the Circular Newsletter 61/E of 27th December 2010 must be interpreted with a view to the trust tax residence. Therefore, the income of a transparent trust that is attributable to Italian tax resident beneficiaries is taxable in their hands as capital income, irrespective of whether the trust qualifies as an Italian tax resident or the income is Italian source. The (practical) meaning is that, according to art. 44 ITCA, income is taxable at a progressive IRPEF rate (up to 45% circa). Once the attribution from foreign trust to Italian tax resident beneficiaries is “mixed” (or “tainted”) the whole is to be classified as income, therefore taxable at IRPEF tax rate upon the beneficiary (art. 45 ITCA).

This rule is extended to all instruments with a similar impact, including foreign foundations.

The Circular Newsletter Draft is pretty accurate in clarifying  the concept of Capital (“patrimonio”) and of Income (“reddito”) within the context  of Italian tax rules and this part of the draft must be welcomed as it reduces misunderstandings. As already commented, it is particularly important to account the trust fund according to Italian rules. The Tax Authorities, on the basis of of art. 163 ATCA, clarify that no double taxation is possible. We should look to the tax residence of the trust in order to classify the (worldwide) income and therefore whether there is or is not a “low-tax” jurisdiction, according to Italian tax rules, an Income which has already been taxed in Italy will not be (re)taxed upon the trust beneficiaries.


B – Indirect Taxation

In relation to this issue the Italian Tax Authorities, under pressure following recent Supreme Court cases, made a complete u-turn of their interpretation. Up to now, the Tax Office always made space for the “entry” taxations, stating that indirect taxation (Inheritance, Gift and similar deeds, including disposition of assets to trusts) is due when the settlor (or a third party) transfers to the trust and asset. The Circular Newsletter Draft provides that Italian inheritance and gift taxes shall now apply now at the time of the transfer of the trusts’ assets to the beneficiary (final attribution).

According to Italian tax rules Inheritance Tax and Gift Tax is also extended (since 2006)  to any deed where a capital increase is set on a beneficiary, including disposition to trusts (and similar juridical tools e.g. foundations).

The Tax Authorities take no position in the interplay between the previous guidelines and the new interpretations, although the system protects for any double taxation issues. It would be easier to amend this part of the Circular Newsletter Draft to avoid disappointments and misunderstandings, which eventually would be  resolved by the Courts in Italy.

The Tax Authorities confirm that the line of kinship between settlor and beneficiary of the trust is to be considered, confirming the current interpretation line granted by the law about no tax area and tax rates (4%, 6% or 8%). Because of the new interpretation guidelines, the Italian Tax Authorities recalled the previous rules related to  trusts, clarifying the issues related to the so-called transfer taxes (Stamp Duty, Registration, Cadastral and Mortgage taxes) depending on the assets. Within today’s interpretation the act when the settlor inserts assets within the trust funds is to be taxed with a fix fee and, as said, Inheritance & Gift Taxes are required with the   final attribution to the beneficiary. The issue of the change of trustee is clarified, confirming the practitioners view and asking for a fixed stamp duty fee only.


C. Tax Monitoring obligation for Italian tax residents

Italian Tax Authorities also gave their  views on the interaction between the Italian Tax Monitoring obligations (D.lgs. n. 90/2017 (IV AML EU Directive)) and trusts. After a  recap of the current rules, the Tax Authorities admitted that trusts are not specifically referred to, but find an interpretative “solution” in order to constitute trusts within the Tax Monitoring obligations for Italian tax residents, trusts, settlors, trustees, protectors or beneficiaries. The draft provides for  cases which assume the principle of “vested individual or entity” in relation to each specific case. Obligation starts when beneficiaries of trusts are identified or can be easily identified (i.e. when referred to a “per stirpes ” beneficiary following the blood line) pursuant to the trust deed or to related trust documentation.

The draft  addresses the issue of second -degree beneficiaries (i.e. nephews  of the settlor when first beneficiaries are the issues) excluding those cases from an immediate tax obligation to fiscal monitoring as far as they cannot claim, not even potentially, any distribution from the trust. Similarly, an opening seems to be provided for the cases of trustees and trust officers, including the case of protectors and of settlors in so far as the trust gives them no right  to the trust funds.


D. Wealth Taxes (IVAFE and IVIE) for Italian tax resident trusts

The Circular Newsletter Draft takes the opportunity to clarify the functioning of the “Property Tax on Real Estate Held Abroad – IVIE) and on “Net Wealth Tax on Financial Assets Held Abroad – IVAFE). Since 2020, Italian resident individuals, non-commercial companies (i.e. società semplice) and entities (i.e. trusts) are obliged by law to pay a wealth tax also for assets held abroad. The Italian Tax Authorities clarify the impact of the tax residence rules on foreign trusts and that attention must be given to non-white-list foreign trust receiving an immovable assets (or related rights) from Italy.



[1] L. BELLUZZO, The distribution by foreign trust to Italian tax residence beneficiaries: the new rules, in Trusts&Trustees, Oxford University Press, October 2020.

[2] The Circular Newsletter is particularly accurate on explaining their meaning of opaque or transparent trust in relation to the income taxation according to Italian tax rules.

  • Luigi Belluzzo
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