ITALY Law and Practice Contributed by: Paolo Ludovici and Andrea Mirabella, Gatti, Pavesi, Bianchi, Ludovici
the income of a trust is set aside as capital and the other part is allocated to the beneficiaries. As to the rules for determining the taxable base, trusts are distinguished into “commercial” trusts and “non- commercial” trusts depending on whether the trust is engaged in a business activity. Trusts that are established and managed in order to achieve mere interposition in the possession of income are not considered as existent for tax pur - poses. The trust is fiscally disregarded (or interposed) if the power to manage and dispose of the assets remains wholly or partly with the settlor. In this case, the income (formally) produced by the trust continues to be attributed to the settlor. Italian tax authorities have identified certain “indicia” of tax interposition (Circular Letter No 61/E of 27 December 2010), such as trusts whose settlor (or beneficiary) can terminate at any time, generally for his/her own benefit (eg, as revocable trusts), or trusts whose settlor (or benefi - ciary) is vested with powers as a result of which the trustee, while endowed with discretionary powers in the management and administration of the trust, cannot exercise them without the settlor’s (or benefi - ciary’s) consent. Wealth taxes Italian resident non-commercial trusts are subject to IMU (this is also due from commercial trusts) in rela - tion to real estate owned in Italy, and IVIE and IVAFE in relation to assets held abroad. Tax monitoring obligations Italian resident non-commercial trusts are subject to tax monitoring obligations in relation to assets held abroad; thus, they are required to fill in the RW Form of the Italian tax return. Inheritance and gift taxes Legislative Decree No 134 of 18 September 2024 introduced amendments to Legislative Decree No 346 of 31 October 1990 (the Italian Consolidated Act on Inheritance and Gift Tax, or TUS), expressly codifying the relevance of the trust for the purposes of the inher - itance and gift taxes, which until now had been gov - erned solely by administrative practice and case law.
Prior to the introduction of the new legislative provi - sions, the most up-to-date guidance on the taxation of trusts, for both direct and indirect tax purposes, was set out in Circular No 34/E of 20 October 2022 (“Circular 34/E”), issued by the Italian tax authorities. The principal amendments to the TUS, introduced by Legislative Decree No 134 of 2024, in relation to the trust, concern the following aspects. • Territorial scope of the inheritance and gift tax – in the context of trusts, the tax is applicable to all assets and rights transferred to the beneficiar - ies where the settlor is resident in Italy at the time of the segregation event – namely, the transfer of assets into the trust. Conversely, where the settlor is not resident in Italy at the time of such transfer, the tax is levied solely on assets and rights situated within the Italian territory that are subsequently distributed to the beneficiaries. • Tax treatment of transfers made through trusts – transfers carried out through a trust are consid - ered relevant for inheritance and gift tax purposes where they give rise to a gratuitous enrichment of the beneficiaries. In such cases, the tax becomes chargeable at the time the assets are effectively transferred to the beneficiaries (“way-out taxa - tion”). The applicable exemption thresholds and tax rates are determined by reference to the degree of kinship between the settlor and the beneficiary. • Option for the advance payment of tax upon transfer to the trust (“way-in taxation”) – the settlor – or the trustee, in the case of testamentary trusts – may elect to apply inheritance and gift tax at the time of each contribution of assets to the trust. Under this scenario, the taxable base, as well as the applicable exemption thresholds and tax rates, are determined by reference to the overall value of the assets transferred and the degree of kinship between the settlor and the prospective beneficiar - ies at the time of the endowment. Where the tax is paid in advance under this option, any subsequent distributions to beneficiaries belonging to the same category are not subject to further inheritance or gift tax.
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