Potential Italian beneficiaries of foreign trusts must report asset values in tax return

Thursday, 18 November 2021
The Italian Tax Authority's (ITA’s) Tax Ruling No.693/2021, issued in October 2021, affirms its view that both actual and potential beneficiaries of foreign discretionary and irrevocable trusts must report their entitlement and the trust amount in the tax monitoring section of their tax returns.
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The legal basis of this obligation has been debatable in the past, according to law firm Caiazzo Donnini Pappalardo & Associati (CDP). It notes that the tax authority's pronouncement is not a change in the law but only an interpretation of the definition of 'actual beneficiary' (titolare effettivo) of trusts' assets, as amended the Legislative Decree No. 90/2017, which came into effect in 2018.

The interpretation regarding potential beneficiaries was included in a draft tax circular on trusts sent out by the ITA for consultation earlier this year. The consultation is now closed and a final version of the circular is expected to be published and formally enacted in the near future, thereby becoming a mandatory guideline. It will have a significant impact on future tax assessments on 'potential' beneficiaries of foreign trusts on fiscal periods from 2018 onward, says CDP.

If the opinion is made mandatory, CDP expects that tax offices will soon start to challenge omissions of the relevant section (Section RW) in tax returns filed by Italian tax-resident beneficiaries of foreign, discretionary and irrevocable trusts. This could equally apply to beneficiaries identified only as a category of potential beneficiaries, if individuals in the category can be easily identified at the end of each fiscal period.

Failure to report trust assets is punishable with an annual penalty of between 3 and 15 per cent of the entire trust assets value, increasing to 6 per cent or even 30 per cent if the trust is incorporated in a country deemed 'non-cooperative'.

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