I’m pleased to share my latest commentary, “Italy Changes Course on Bonus Tax Deferment for Inbound Employees,” published in Tax Notes International (2025tni37-5).
The article examines the Italian Revenue Agency’s surprising reversal in Ruling No. 199/2025, which abandons the pro rata approach to cross-border deferred compensation.
Under the older approach, Italy would not
Introduction
The taxation of outbound dividends has been the subject of intense litigation in Italy and across Europe, particularly where non-E.U. entities are treated less favorably than similarly situated EU-based or domestic recipients operating in similar circumstances. Recent rulings by Italian courts following the European Court of Justice (ECJ) confirm that withholding tax on dividends
In Ruling No. 144/2025, the Italian tax authorities confirmed that a foreign, fiscally opaque trust can be treated as a separate non-resident taxpayer — and can benefit from the Italian capital gains exemption on sales of non-qualified shares. However, the ruling denied the 1.2% reduced withholding rate on dividends under Article 27(3-bis) TUIR, holding that the benefit is reserved to specific corporate forms listed in EU law, which do not include trusts. What the ruling didn’t address is just as interesting: possible treaty relief under the Italy–Malta tax treaty and potential claims under EU free movement of capital rules.
Italy’s New Look-Through Rule Hits Trust’s Share Sale
In Ruling No. 175/2025, the Italian Revenue Agency confirmed that the “immovable-property-rich” look-through rule under Article 23(1-bis) TUIR—introduced in the 2023 budget law—applies in full force to indirect share sales. A non-resident discretionary trust sold shares of a Swiss company whose only asset was an Italian residential property held for over five years. The Agency rejected the taxpayer’s attempt to apply the five-year capital gain exemption for direct property sales, holding that the gain was taxable in Italy at 26%.
The decision aligns with OECD Model Article 13(4) and the Italy–U.S. treaty’s property-rich share rule, confirming Italy’s right to tax such gains regardless of holding period. For planners, the message is clear: exemptions for direct real estate sales don’t carry over to indirect disposals, and treaty coordination will be key to managing double taxation risks.
Italy and Trusts: A Contractual Fiduciary Relationship, Characterized as an Entity for Tax Purposes
While Italy does not have its own domestic trust law, it recognizes trusts that are validly established under the law of a jurisdiction that is a party to the Hague Convention on the Law Applicable to Trusts and on their Recognition
Italy’s Tax Agency Rules on U.S. Trusts: The Risks of Beneficiary Control
In a recent ruling (n. 258, December 16), the Italian Tax Agency examined the tax treatment of three U.S.-based trusts with an Italian-resident beneficiary. The decision reinforces a crucial principle: excessive control by a beneficiary over the trustee can lead to the trust being disregarded for tax purposes (fiscal interposition), exposing the beneficiary to immediate taxation on trust income.
The ruling highlights three critical factors that can trigger unfavorable tax treatment:
✅ The power to revoke and replace the trustee – A beneficiary with this authority is deemed to have control over the trust, making it fiscally interposed.
✅ Trustee reporting obligations to the beneficiary – If the trustee must report directly to the beneficiary, the trust may lack true independence.
✅ Indirect control through family members – Even when the beneficiary does not directly control the trust, the ability of close relatives to appoint trustees or influence major decisions can lead to fiscal interposition.
The implications of this ruling are significant. If a trust is fiscally interposed, all income is taxed as if it belongs directly to the beneficiary, regardless of actual distributions. Even in cases where the trust is considered fiscally transparent, income is taxed annually at the beneficiary’s marginal rates, reducing the deferral benefits of a trust structure.
💡 Key Takeaway: Trusts involving Italian tax residents must be structured carefully to maintain trustee independence and avoid provisions that grant direct or indirect control to beneficiaries. Periodic trust reviews and professional tax guidance are essential to ensuring compliance with Italian tax laws and optimizing tax efficiency.
For individuals with U.S. trusts and Italian residency, proactive planning is crucial to avoid unintended tax consequences. If you’re uncertain about how your trust might be classified, consult with an international tax professional to assess your specific situation.
📩 Need advice on cross-border trust taxation? Contact us to discuss how we can help you navigate these complex rules.
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