Notwithstanding some relatively recent legislation, trusts have still a difficult life in Italy.

From a tax point of view, there has been an ongoing conflict between the Italian Revenue and trustees / their professional advisers on when and how trusts should be taxed.

Not surprisingly, since 2006 the Italian Revenue (Agenzia delle Entrate) has been holding that both the initial settlement of property on trust and the ultimate disposal of the property, out of the trust to the beneficiaries should both be taxed at a full rate of tax.

The Italian Revenue claims that inheritance and gift tax (Imposta sulle successioni e donazioni) is payable at the time any property is transferred into the name of trustees at the inception of the trust. Depending on the relationship between the settlor and the trustee, the rate of tax ranges from 4% (subject to a nil rate band of Euro 1,000,000) if the trustee is a spouse or a child of the settlor, to a rate of 8% and no nil rate band where the parties are not related. Additional tax (Imposte Ipotecarie e Catastali), at the full rate, would also be payable at a later stage when Italian real estate is transferred from the trustee to the beneficiaries. This would make trusts very expensive arrangement in Italy.

On the other hand, the Italian Notarial Society (Notariato) has long held that on the creation of trusts there is no actual “enrichment” of the trustee. Such “enrichment” being a prerequisite for the application of Italian inheritance and gift tax, there can be no proportional gift tax on settling property on trust. Other taxes are payable instead (Imposta di Registro, Ipotecaria e Catastale) when Italian real estate is settled on trust, and then only as flat tax (Imposta fissa –  Euro 200) and not as a percentage of the value of the assets settled on trust. Full proportional taxation should only take place when the asset / Italian real estate is transferred from the trustee to the ultimate beneficiary.

After some hesitation, the Italian Supreme Court (Corte Suprema di Cassazione) is definitely coming down in favour of this latest interpretation of the current legislation.

Three judgments (Nos. 15453, 15455 and 15456) were issued by the Italian Supreme Court on the 7th June 2019, relating to the creation of different forms of trusts in Italy, but all three coming down to the same conclusion. It is illogical to try and apply proportional taxation on the creation of a trust, on the transfer of assets / Italian real estate from the settlor to the trustee. At this stage, the rights transferred to the trustee are very limited (because the trustee duties heavily limit his right to enjoy the asset when compared with a full, ordinary owner) and are only temporary.

Instead, the only definite, taxable transfer of value which is evidence of taxable wealth (Capacita` contributiva), which is also the subject matter of proportional taxation in Italy, occurs when the trust assets are eventually transferred from the trustee to the ultimate beneficiaries (on the same lines several other Judgments of the Italian Supreme Court, ranging from 2015 to 2018).

No mention is made in the Italian judgements, as to what happens when real estate or assets are held in the trust, for an indefinite period of time, a point which may well be raised by the Italian Revenue in future.

In any event, the recent judgments of the Italian Supreme Court are also helpful in implementing foreign (English Law) Wills in Italy. With English Wills, Executors are frequently also Trustees.

If the interpretation of the Italian Revenue was applied, where Italian real estate is involved, there could be a risk of Italian proportional taxation on the value of the real estate being levied both at the time when the Executors / Trustees collect, get in and administer the Italian Estate and then, again, when the same assets, are eventually distributed to beneficiaries.

The recent three judgments and the evolving decisions of the Corte Suprema di Cassazione may prevent such tax duplication.

However, a suitably worded Italian Will could possibly achieve the same result, without the need for litigation with the Italian Revenue in Italy, all the way up to the Italian Supreme Court.

Avv. Claudio Del Giudice – 04.07.2019 Copyrights reserved