"Trusts" have been relatively unknown
for centuries in Italy, a civil law
country. An international convention for
the recognition of Trusts dating back to
1985 and ratified by Italy in 1989, laid
forgotten on the Italian statute book
for many years.
Only very recently, at the end of 2006
the Italian Parliament passed the 2007
Finance Act ("Finanziaria 2007"),
a raft of legislation which among the
many changes and complications, has the
merit of introducing the first clear set
of rules on the taxation of trusts in
Italy. In addition, the new rules were
clarified by a regulation issued by the
Italian Revenue (Agenzia delle
Entrate), in August 2007. Clearly
the stage is now set for the taxation of
trusts in Italy.
The basic principles
The recent regulation issued by the "Agenzia
delle Entrate" is remarkable, for
apart for dealing with the practical
issues provides a definite statement in
Italian legal terms of the concept of
"Trusts" as evolved in England and in
many foreign jurisdictions.
The Italian Revenue summarizes the
taxation of "Trusts" as follows:
- "Trusts" are autonomous and
independent entities for tax purposes,
in Italy
- "Trusts" are subject to Italian
Corporation Tax (IRES)
- Considering the great flexibility of
the concept of "Trusts" it is necessary
to draw a distinction between:
- "Trusts" whose beneficiaries are
clearly established ("Transparent
trusts") and whose income is taxed in
the hands of such beneficiaries
- "Trusts" whose beneficiaries are not
clearly established "Opaque Trusts"),
whose income is subject to Italian
Corporation Tax.
- Because "Trusts" are independent and
autonomous taxpayers, where relevant
"Trusts" are required to keep proper
accounting and tax records, to obtain
tax code numbers (Codici Fiscali)
and Italian VAT numbers (Partita IVA),
and of course, lodge returns and pay
taxes in Italy.
The residence of trusts
"Trusts" are taxed in Italy if they are
deemed to be resident, or otherwise if
they have any income in Italy. Because
of the above classification, once the
Italian taxable income is established in
accordance with ordinary rules, the
trustee will have to differentiate
between the beneficiaries` income which
will be taxed in their hands, and the
"Trust" income which will be subject to
Italian Corporation Tax.
As an alternative, and where the income
is of a financial nature, the Trust
income may have been taxed by
withholding at source, and therefore is
not subject to other taxes.
As for companies and other corporate
entities, a "Trust" is resident if
either:
- its seat / main office (Sede legale),
or
- its management (Amministrazione),
or
- its main object / business (Principale
attivita`)
are in Italy.
Because of current anti-avoidance
legislation, special rules apply to
trusts set up in "Tax haven" countries.
Thus a foreign "Trust" is deemed
resident where the settlor and one of
the beneficiaries is resident in Italy.
Alternatively, a foreign "Trust" will be
deemed resident the moment Italian real
estate or associated property rights are
transferred into the foreign "Trust".
The taxation of beneficiaries
The Italian Revenue goes on to consider
the taxation of beneficiaries. In the
case of “Transparent Trusts" (where
clearly identified beneficiaries are
entitled to a definite share of the
"Trust" income), the beneficiaries will
be taxed, whether they actually receive
such income or not.
Where the "Trust" is opaque and the
beneficiaries cannot be clearly
determined, the "Trust" itself will be
subject to Italian Corporation Tax.
However the same income will not taxed
again when eventually paid out to the
beneficiaries.
Other taxes
Different taxes will apply at the time
the "Trust" is created and when assets
are transferred into the "Trust".
In the latter case, Italian Inheritance
and Gift Tax (Imposta sulle
Successioni e Donazioni), as
recently re-introduced in Italy will
apply.
Where assets are transferred into a
"Transparent Trust", and the clearly
identified beneficiaries are also the
members of the settlor`s immediate
family, the reduced 4% rate of tax will
apply. In accordance with general
principles, no tax should be payable
where the beneficiaries are the issue of
the settlor and the asset transferred
into the “Trust” is a business (Azienda)
or stock and shares.
Where assets are transferred into an
"Opaque Trust" the normal 8% rate of tax
applicable to unconnected parties, will
apply. In either case, no additional tax
should be payable when the assets are
transferred out of the Trust to the
final beneficiaries.
These are the main, new tax rules which
will have to be clarified by the
jurisprudence of the Italian tax courts,
and hopefully will not be made confusing
by future legislation.
These principles are beautifully simple,
but the writer wonders how long they
will remain so. Because of their
financial implications, this is a new
area of Italian tax law that regrettably
is probably soon destined to evolve into
some complication. (Back
to Index)
Avv. Claudio Del Giudice
November 2007 - C Copyrights reserved.
