Dr Antonio Landolfi
by Dr Antonio Landolfi
Introduction
The Italian Tax Agency Circular no. 34/2022 of 20 October 2022 officially clarified a number of debated issues in Italy, related to both direct and indirect taxation of trusts. First of all, it is worth mentioning that Italy has never issued a specific law on domestic trusts, as it is the case in many civil law countries. However, trusts subject to foreign laws are recognised via the enforcement of the ratification of the 1985 Hague Convention on Trusts.
The recent circular offers a significant revision of the agency’s previous interpretation on the taxation of trusts, and comes after several interesting rulings issued in the last decade by the Italian Court of Cassation that unfortunately have never been applied by the tax agency.
Indirect taxation
The previous Tax Agency Circular no.3/2008 stated that Law no. 262/2006 on Succession and Donation Duty would apply to any transfer of movable and immovable assets to the trustee, either at the trust deed or later on, with the following tax rates:
4 percent (over an exempted value of EUR 1 million per heir) for spouses and lineal relatives;
6 percent (over an exempted value of EUR 100,000 per heir) for brothers and sisters;
6 percent on the total value (i.e. without exemption), for other relatives and in-laws; and
8 percent on the total value for other heirs.
This interpretation has now been completely reversed by the latest circular. It states that the trust deed shall be subject to a fixed registration fee of a few hundred euros, also to be applied to subsequent deeds of transfer of assets to the trustee. Furthermore, the Agency expressly confirms that these are tax-neutral transfers, implying an attribution of wealth neither in favour of the trustee, nor in favour of the beneficiaries (as per the Supreme Court’s Orders nos. 24153, 24154 of 30 October 2020). Consequently, inheritance tax shall be due only when trust assets are assigned to beneficiaries.
Direct taxation
The tax agency addresses some other previously unsolved issues in this recent circular related to direct taxation of trusts. In particular, referencing non-resident trusts without named beneficiaries and established in states with particularly favourable tax regimes compared to Italy (i.e. nominal level of taxation on incomes lower than the 50 percent of that applicable in Italy), the Agency states that sums paid to resident persons shall be considered as taxable income. On distributions by foreign trusts to beneficiaries residing in Italy, the Agency affirms that, in cases where it is not possible to distinguish between distribution of incomes or of trust assets, the entire amount shall be deemed taxable income.
Conclusion
By virtue of this recent U-turn by the tax agency, settlors, beneficiaries, and trustees in Italy can rely on a favourable alignment between the Agency and the Supreme Court of Cassation which might have a material effect on the trust industry in the coming years, and an anticipated reduction of disputes instigated by the Italian Tax Agency will presumably lead to a substantial diffusion of both family and commercial trusts in the country.
Read the full version of this article on GGI Forum.
Dr Antonio Landolfi is an international lawyer, fully qualified in Italy, LLM in International Business Law (University College London), PhD, and managing partner of Landolfi & Associati.
Landolfi & Associati is an international law firm established in Italy in 1936, with offices in Milan and Naples, and focused on M&A, cross-border transactions, wealth protection and management, and banking and finance Law. L&A advises leading national and multinational enterprises, family offices, and high-net-worth individuals. L&A’s mission is to protect clients' businesses and legacies, and to enhance their national and international expansion.
GGI member firmLandolfi & AssociatiNaples, ItalyT: +39 081 400412Law Firm Services, Advisory, Corporate Finance, Fiduciary & Estate Planning
