Taxation of Distribution from “Opaque” Foreign Trusts Set Up in Blacklist Countries
By Angela Cordasco, Loconte & Partners
In Italy, as a general rule, income generated by “transparent” trusts (trusts with appointed beneficiaries) is attributed to the beneficiaries regardless of its distribution for tax purposes and trust beneficiaries are taxed directly on their share of the trust’s income.
Whereas income generated by “opaque” trusts (with no identified beneficiaries) is not subject to tax in the hands of the Italian residents who received said income.
However, a tax decree issued in October 2019 (D.L. no. 124/2019) has changed the tax treatment of income generated by opaque, foreign blacklist trusts received by Italian residents. In particular, while distributions made out of capital will generally continue to be considered non-taxable, any distributions out of income generated by a foreign blacklist trust, even if it is considered as opaque will be taxed in the hands of the Italian residents who receive said income.
According to the Italian tax law, a country (other than EU member states and EEA countries which grant an effective information exchange) is considered blacklist if the nominal tax rate is lower than 50% of the nominal tax rate applicable in Italy, which is equal to 24% (for corporations).
Other important news is related to capital distributions. Generally speaking, capital distributions are not taxable in the hands of the Italian tax residents who receive said capital. However, the abovementioned tax decree establishes that, when it is not possible to determine whether the distribution is made out of income or out of capital, the whole amount is deemed income distribution and it is taxed on the beneficiaries.
Therefore, according to the current tax law, distributions of income from trusts established in blacklist countries will be subject to tax in the hands of the Italian tax residents who receive said income, disregarding the qualification of the trust as opaque or transparent. In addition, if it is not possible to establish whether the distribution is made out of income or out of capital, the whole amount will be considered as income.
Angela CordascoGGI member firm
Loconte & Partners
Advisory, Auditing & Accounting, Corporate Finance, Fiduciary & Estate Planning, Law Firm Services, Tax
T: +39 024 5476 250
Loconte & Partners is a law firm specialising in tax and legal consultancy that assists its Italian and international clients, helping them to preserve and grow their wealth.
Angela Cordasco is an Italian lawyer. After graduating in Law, she completed two postgraduate master’s degrees focused on Tax Law and on Wealth Management and Asset Protection. She has noteworthy experience in tax law matters and cross-border individual taxation. Angela joined Loconte & Partners in 2014, where she deals mainly with private clients for asset protection and wealth-management services.
Published: Trust & Estate Planning Newsletter, No. 05, Spring 2020 l Photo: ycharton - stock.adobe.com