Trusts were unknown in Italy, until a few years ago. Italy being a Civil Law country, totally ignored Trusts as developed in Common Law jurisdictions. Following the introduction of The Hague “Convention on the law applicable to trusts and on their recognition” with a law in 1989, the use of Trusts has slowly spread in Italy.
Like any imported species, Trusts arouse great interest but are also causing problems in the general Italian legal environment.
From a consideration of recent reported cases, these problems have nothing to do with the Common Law concept of “Trust” being imported in a traditionally civil law country, and everything to do with the fact that Trusts have been (ab-)used in an attempt to circumvent legal obligations.
RECENT CASES – A few cases on Trusts have been reported in Italy, this year so far:
Monza 13.05.2015 – This is a first instance decision and relates to the application by a taxpayer, to have removed a charge over some of his properties imposed by the Italian Revenue for outstanding tax liabilities.
In this case, the taxpayer upon becoming aware of the outstanding tax liability had set up a self-declared Trust, transferred most of his real estate to the Trust and declared himself a trustee on behalf of some members of his family.
The Judge in Monza was not impressed, and upon noting that the payment of tax is a matter of public policy, declared the self-imposed Trust totally null and void.
Siena 22.05.2015 – This decision relates to an application to the local courts by the Liquidator of a company in the Italian equivalent of compulsory winding up (Fallimento), because of directors` malpractice.
After the company`s insolvency, and presumably to avoid liability for damages, the directors had transferred most of their real estate to a Trust set up for the protection and advancement of the members of their families. This first instance Judgment is complex as it also relates to other issues, but as far as the Trust is concerned the Siena Judge had no hesitation in declaring the transfer of properties to the Trust null and void as far as the Liquidator was concerned.
Piacenza 06.07.2015 – This is also a first instance decision. Here the debtor set up an “English law” Trust and appointed an English limited company, as trustee. The debtor then transferred all her real estate to the newly constituted Trust, for the benefit of her son (the beneficiary). Meanwhile, the debtor continued to live in one of those properties.
A local bank, being a creditor of the settlor applied to the local Courts for a declaration that in the circumstances this Trust was totally null and void as a matter of public policy. In the alternative, the local bank also applied for a declaration that the setting up of the Trust and the transfer to the Trust of all the debtor`s real properties was a fraud on the creditors, preordained to prevent enforcement of outstanding commercial debts.
The local courts declined to declare this Trust totally null and void. However, it found that this Trust was a sham and a fraud on the creditors. The local court then ruled that this Trust should be totally disregarded by the creditor and enforcement action could be taken by the local bank directly on the real estate held by the Trust (Azione revocatoria).
Rome (25.02.2015) – This is a decision of the Italian Supreme Court. This judgment dealt with the taxation of self-declared Trusts in Italy, that appear to be rather popular. It can only be assumed that a “self-declared trust” avoids the main problem perceived by many Italians with the concept of a Trust at Common law. If you set up a Trust, settle on the Trusts all your properties and then appoint yourself trustee at the same time, you do not need to trust any other person / entity, and you continue to be in control of your assets…
In this case the Italian settlor, having set up his self-declared Trust under the 1994 Jersey Trust Law and settled all his real estate for the benefit of members of his family, claimed to be entitled to avoid paying Italian Inheritance and Gift Tax (Imposta sulle Successioni e Donazioni ), normally levied also on gifts, in Italy.
This claim was based on the fact that there had been no actual transfer of assets to third parties, the real estate originally in the name of the settlor, after the self-declared Trust had been set up, was still in the name of the same natural person, the self-appointed trustee. Nothing daunted, the Italian Revenue raised an assessment of Italian Inheritance and Gift Tax at the rate of 8% and other taxes on a proportional basis, on the property transferred to the self-declared Trust. Eventually, this dispute reached the Italian Supreme Court (Corte di Cassazione).
Here the Italian Supreme Court, referred to a recent amendment of the 2006 Italian Inheritance and Gift Tax Law relating to the application of this tax to the granting of benefits / restrictions in the use of property (Imposta sul vincolo di destinazione) and stated that although there had been no actual transfer of the real estate to any other individual or company, the tax was payable by the beneficiaries. Because of a quirk of Italian law on property transfers, in default of the taxpayers, this tax was due by the Notary who had assisted with the setting up of the Trust / transfer of the real estate to the Trust.
These decisions seem to be very much a question of common sense, as a Trust cannot be allowed to be used as an instrument of fraud, to avoid legitimate commercial and tax liabilities.
The recent cases must also be considered in the light of their practical consequences, in Italy.
Where a Trust is claimed to exist, and legal proceedings are required to establish its legal existence and its practical implications, this frequently results in a substantial delay (sometimes, quite a few years) in the enforcement of the relevant legal obligations. This is due to the length of Italian legal proceedings, and to the time it may take to get to a final, binding decision.
This is an unfair advantage for the debtor, who benefits from this delay caused by the protracted legal proceedings.
Because of this state of affairs, the Italian Parliament has recently introduced legislation to prevent this defaulting debtor`s unfair advantage. An article has been introduced in the Italian Civil Code, effective from August 2015.
Under this provision, where the debtor has created a “Vincolo di indisponibilita` o alienazione ” a “Restriction on the use or sale of property”- a wide legal concept including also Trusts, foundations or similar entities – on real estate or movable goods registered in public registers, without consideration (i.e. a gift), then a creditor may proceed to enforce his credit on these assets, disregarding the Trust, foundation etc. This means that, subject to some conditions, enforcement action can be immediately taken for the settlor`s debts, directly on the assets / real estate of the Trust, without having to wait for a judicial decision as to the validity or effect of such entity. This is a new provision and there is no case law yet, as far as the writer is aware.
Clearly Italians are considering with interest the perceived opportunities afforded by the newly introduced Trusts, and recently seem to have embraced them and have been testing this new legal tool to its limits, sometimes, even beyond its acceptable legal limits.
Dr Claudio Del Giudice – 24.09.2015 – Copyrights reserved