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Marco Q. Rossi is the founder and principal of Marco Q. Rossi & Associati, PLLC, an innovative boutique international law firm dedicated to providing strategic legal and tax advice for cross-border business transactions and personal international legal and tax matters.

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.

In Italy, the legislation on the determination of tax residency for natural persons (individual taxpayers) changed in 2024. The most significant changes concern the new definition of “domicile”, which is one of the four alternative criteria used to determine personal tax residency for income tax purposes, and the enactment of the new physical presence rule. 

With Ruling n. 165 issued on August 8, 2024, the Italian Tax Administration ruled on a matter in which a trust was terminated by mutual agreement of the settlor, trustees, and current beneficiaries. The trust had been organized under the laws of Jersey as an irrevocable trust. Jersey law allowed a beneficiary to permanently renounce

On October 9, 2023, the last Ministerial Decree required for the final implementation of Italy’s Register of Trusts was published, and the Register of Trusts is now in effect. The initial filing deadline is December 11, 2023. The filing in the Register is required for domestic trusts, private foundations, and similar legal arrangements, defined as

On October 16, the Council of Ministers approved a legislative proposal that will repeal the special tax regime for new resident workers, entrepreneurs, and professionals with effect from January 1, 2024.

The special regime, enacted in its final form in 2020, allows Italian and foreign nationals who establish their tax residence in Italy while not

In its ruling n. 370 issued on July 4, 2023, the Italian Tax Agency concluded that in a case of a change of tax residency during the year, the treaty provision according to which the change of tax residence takes effect on the day of the transfer out of Italy to the foreign country is

In its Ruling n. 309 of April 28, 2023 (Risposta-n.-309_2023-1.pdf) the Italian Tax Agency addresses the issue of taxation to Italian beneficiaries with respect to distributions from a U.S. Trust.

Background

Under Italy’s tax law, trusts are classified in one of three ways, with different tax consequences for the trust, the settlor, and

In its ruling no. 267, dated March 27, 2023 (Risposta-n.-267_2023.pdf), the Italian Tax Agency addressed a case involving a trust where the Settlor reserved the power to revoke and replace the Guardian and retained certain powers related to the shares of a company he transferred to the trust, including the power to appoint

With its ruling n. 251, issued on March 16, 2023 (n. 251 of March 16, 2023), the Italian tax agency addressed the issue of the tax classification of a Family Trust and a Testamentary Trust that were funded and started operating following the death of the settlor.

Background

Under Italy’s tax law, trusts are classified

The Italian Tax Agency recently issued Ruling n. 237 of March 2, 2023 (Risposta-n.-237_2023.pdf), which clarifies foreign trusts’ tax treatment concerning Italian tax resident beneficiaries.

Under the ruling, when the trustee of a foreign trust is required to make an annual distribution to beneficiaries based on a predetermined percentage of the fair market