Italy’s drive for trust transparency

Saturday, 01 March 2014
Luigi Belluzzo and Alessandro Belluzzo discuss Italy’s new reporting obligations for trustees and beneficiaries.

From fiscal year 2013,1 Italian tax-resident individuals and assimilated non-commercial entities (società semplice or trusts) are required to disclose the value of foreign assets directly and/or indirectly owned on their income tax return.2 For assets directly or indirectly owned, and located in non-whitelisted countries, the reporting obligation is set at the fair value of the assets. Penalties for non-compliance depend on the value and location of the assets, and range from 3 to 15 per cent per year for whitelisted jurisdictions (e.g. England) and from 6 to 30 per cent for blacklisted jurisdictions (e.g. Switzerland).

The reporting requirement is applicable to an Italian-resident capital beneficiary of assets that are located abroad and held directly or through companies, trusts and/or other arrangements (i.e. insurance wrappers). There is a capital beneficiary if:3

  • Future or current beneficiaries have already been determined and they are also beneficiaries of 25 per cent or more of the assets.
  • Beneficiaries have not yet been determined, but there is a class of persons in whose main interest the trust has been established and/or acts.
  • A person (or persons) exercises control in respect of 25 per cent or more of the trust assets.

It is advisable to assess and verify the consequences of the Italian rules on the taxation of trusts prescribed by Circular 61/E/2010.4

Italian tax residence and compliance

An Italian-resident trust, through its trustees, must comply with these new filing obligations.

Offshore trusts, trustees, protectors and beneficiaries could potentially be classified as Italian residents. For non-whitelisted countries, trusts and/or individuals have to give adequate proof that they are not Italian tax-resident, or they are deemed to be resident and obliged to disclose information in their income tax return. This is also the case for a capital beneficiary tax-resident in Monte Carlo, or a trust established in the Bahamas and run from Switzerland on the basis of a Swiss mandate or similar arrangement.

The capital beneficiaries of a non-resident trust may be exposed to the new reporting requirements. It is highly advisable that practitioners carry out an analysis of their clients’ trusts’ tax residence, and ascertain
if anyone qualifies as a capital beneficiary.

Trust and estate planning in Italy and/or for Italian residents

The trust is well known by the Italian administration as an estate-planning tool; no one doubts its legitimate role with regard to inheritance, governance or other legal issues. The most problematic issue is tax. The Italian tax authorities are suspicious of the use of trusts in international tax planning, and so it is important that structures are transparent and compliant.

A clear distinction between the juridical and the tax effect of trusts has to be made, in order to avoid any misconduct. The concept of fiscal interposition applies both for domestic and offshore trusts,5 but the new rules are applicable to Italian residents only.6 It is of the utmost importance that both domestic and international trusts are considered not fiscally interposed, both under real and/or fictitious interposition. It may be necessary to adopt new best practices on trust deeds and document drafting. The same should
be said for the legitimate use of companies, trusts, foundations, insurance wrappers and other similar structures when an Italian is involved. A decision to take Italian tax residence and keep the structure in a trust-friendly jurisdiction is also to be considered, depending on the general and particular aims
of the structure.

For offshore structures, Italian taxpayers and foreign trust officers may find it useful to analyse the impact of the voluntary disclosure programme in Italy. This will have a double dividend: it will allow identification of past issues that are problematic for the present, and it will allow Italian residents to plan for the future in a fully compliant manner.

  • 1The reporting deadline is 30 September 2014
  • 2Circular 38/E of 23 December 2013 brought the legislation into force on 18 December 2013. See also article 4 of Law Decree No.167/90
  • 3The test to identify a capital beneficiary follows the Third Anti-Money Laundering Directive (2005/60/EC) as introduced in Italy (Law Decree No.231, of 21 November 2007)
  • 4Alessandro and Luigi Belluzzo, ‘New guidance on trust taxation’, STEP Journal, April 2011
  • 5Circular 61/E/2010
  • 6Circular 38/E
Author block
Luigi Belluzzo and Alessandro Belluzzo

Luigi Belluzzo TEP is an Equity Partner at Belluzzo & Partners in Milan. Alessandro Belluzzo TEP is an Equity Partner at Belluzzo & Partner in London.

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