Bari, Italy

The Dispute Surrounding the Indirect Taxation of Italian Trusts

By Angela Cordasco, Loconte & Partners

The indirect taxation of trusts, with reference to inheritance and gifts tax, has not been a straightforward matter over the years.

The dispute mainly relates to the tax event when the inheritance or gift tax is due and it is effectively caused by a lack of regulatory clarity: although the legislator has indeed regulated the trust’s direct taxation, and therefore the taxation on the income produced by the trust, nothing was established with regards to indirect taxes.

The Italian Revenue Agency faced the matter quite some time ago, with circular no. 48/E, published in 2007, and circular no. 3/E, published in 2008, clarifying that the inheritance or gift tax shall be paid when the asset is transferred to the trust, as the taxable event – for indirect taxation – is when the settlor transfers the ownership of the asset to the trustee.

The above thesis, supported by the Italian Supreme Court in some pronouncements issued around 2015, is convenient for the taxpayer, since by anticipating the tax event it is possible to benefit from the current (low) tax rates, avoiding the risk of a future tax increase. The current tax goes from 4% in the case of spouses and parents/children (with an allowance of EUR 1 million for each beneficiary), to 6% for close relatives (with an allowance of EUR 100,000 for siblings), to 8% in the case of no family members (with no allowance).

Notwithstanding the interpretation made by the Italian Revenue Agency, the most recent pronouncements of the Italian Supreme Court, confirming the theory of many trust law experts, has changed the approach to the matter, stating that inheritance and gift tax shall be paid when the asset is definitively distributed to the beneficiaries and not when it is transferred to the trust. The reason is that when the asset is initially transferred from the settlor to the trustee, there is no actual enrichment of the latter. Such enrichment, being a condition for the application of Italian inheritance and gift tax, occurs only when the ultimate beneficiaries receive the trust’s asset.

Angela Cordasco

Angela Cordasco

GGI member firm
Loconte & Partners
Advisory, Auditing & Accounting, Corporate Finance, Fiduciary & Estate Planning, Law Firm Services, Tax
Bari, Italy
T: +39 024 5476 250
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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. 07, Spring 2021 l Photo: Mi.Ti. -

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