Under new anti money laundering legislation due to become effective in Italy in 2017, all foreign trusts with tax effects in Italy shall have to be filed and registered on the Italian Register of Enterprises. They include trusts with Italian settlor, Italian beneficiaries, Italian assets, Italian source income or treated as Italian resident trust under Italian tax law.

The tax effects of a trust in Italy and the consequent obligation to disclose it on the Italian Register of Enterprises is determined under Italian tax laws.  The way in which a trust, its income or its beneficiaries are treated under foreign tax law is not determinative for that purpose.   

Trustees of trusts subject to the new disclosure and filing rules shall have to collect, conserve and disclose adequate information about trust’s ultimate beneficial owners, which are meant to include the settlor, the trustee, the guardian, the beneficiaries, and any other person having any type of control or authority over the trust.

The scope of the new disclosure and reporting rules for trusts is very wide. All trusts with any apparent or potential point of contact with Italy should be revised to determine whether they fall within the application of the new rules.   


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Foreign trusts, with connections to Italy such as Italian located assets, beneficiaries or grantors, and aimed at producing legal and tax effects in Italy, will be subject to full disclosure in Italy including registration in the Italian public register of enterprises regardless of the fact that they are created and administered abroad and governed by foreign law. The disclosure obligation falls upon the trustee, even if residing abroad. Failure to disclose brings with it criminal and monetary penalties.

That is the result of the new transposition in to Italian law of the new EU anti money laundering directive.

The deadline for the implementation of the Directive in the law of the EU Member States is June 2017.

Foreign trustees of foreign trusts with connections to Italy must pay attention to the developments in this area of law.
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Italy operates specific provisions on tax treatment of trusts. Trusts formed under foreign law are recognized and enforced in Italy pursuant to the Hague Convention on Trusts dated July 1, 1985. To the extent they have Italian assets, or Italian grantor, trustees or beneficiaries or Italian source income, foreign trusts may be subject to Italy’s


I. Introduction

Italy does not have domestic rules on trust.

However, trusts created under foreign law are recognized and enforceable in Italy pursuant to the provisions of the 1985 Hague Convention on the Law Applicable to Trusts and Their Recognition, which has been ratified and implemented and is fully effective in Italy as part of Italian legal system.

 

The Hague Convention was signed on July 1, 1985 and ratified in Italy with law n. 364 of October 16, 1989 and entered into force on January 1, 1992. It is aimed at harmonizing the private international laws of the contracting states relating to trusts; provides that each contracting state recognizes the existence and validity of trusts created by a written trust instrument; sets out the general characteristics of a trust and establishes rules for determining the governing law of trusts with cross-border elements.

 

According to the Convention, as implemented in Italy, a trust created pursuant to and governed by the law of a country that has provisions governing trusts is recognized and valid in Italy, subject only to the overarching limitation of Italian public order principles.

 

Purely internal trusts, with Italian grantors, Italian beneficiaries and assets located in Italy are also recognized.

 

With the Finance Bill for 2007 Italy enacted, for the first time, specific provisions dictating the tax treatment of trusts for Italian tax purposes[1]. They establish general principles on tax classification and treatment of trusts in Italy for income and indirect tax purposes and have significant cross-border implications

 

On August 6, 2007 Italy’s tax administration issued Circular n. 48/E that provides administrative guidance on the interpretation and application of the new tax provisions on trust. Circular 48/E clarifies the tax treatment of trusts both for income tax and transfer (indirect) tax purposes. 

 

Subsequently, Italy’s tax administration issued additional interpretative guidance by way of Circular n. 61/E issued on December 27, 2010.

 

Generally, for a trust to exist as a legal and tax entity separate from the grantor, the trustee and its beneficiaries, there must be a real and effective legal separation of the trust’s assets from both the estate of the grantor and the beneficiaries of the trust and the trustee must be granted with real powers of administration of the trust, acting independently from and not being under the direct or indirect control of the grantor or beneficiaries of the trust.

 

Once it is positively established that a trust actually exists, as a general rule, for income tax purposes trusts are classified as separate taxable entities and taxed as corporations.

 

However, trusts with income beneficiaries that are identified and named in the trust agreement are treated as fiscally transparent entities – that is, income is attributed to the beneficiaries as provided for in the trust agreement, regardless of whether and how the trust distributes its funds, and the beneficiaries are taxed directly on their share of trust’s income. This fiscally transparent treatment applies also in the event that after the initial creation of the trust, the trustee determines the income beneficiaries of the trust pursuant to the authority granted in the trust agreement.

 

A trust is resident in Italy for tax purposes if its place of management or place of activity is located in Italy. Trusts formed in jurisdictions that do not allow exchange of information with Italy are treated as residents and subject to worldwide taxation in Italy, if certain connections with Italy exist (for example, if any grantor or beneficiary is Italian), unless taxpayers provide sufficient evidence that they are resident (that is, effectively managed) outside of Italy.

 

Trusts must keep tax books to compute their taxable income (taxed upon the trust in case of fiscally non transparent trusts, or passed through to and taxed upon the beneficiaries in case of fiscally transparent trusts).

 

A gratuitous transfer of assets to a trust is subject to gift or estate tax. The tax is charged at reduced rates (4 and 6 per cent) if beneficiaries named in the trust agreement or determined by the trustee at any time thereafter are close family members. Otherwise, the regular rate for trusts with no identified beneficiaries or beneficiaries that are not close family members or charitable trust is 8 per cent. 



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Italy’s Tax Administration provided additional clarifications on Italian taxation of trusts. In particular, Circular n. 61/E issued on December 27, 2010 addresses the situations in which a trust is disregarded as abusive or fictitious interposition between the settlor and the assets and income of the trust and must be disregarded for tax purposes. Circular 61/E expanded the list of examples of abusive situations and shows the administration’s willingness to contrast the use of trusts for tax avoidance purposes.
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