ITALY Law and Practice Contributed by: Paolo Ludovici and Andrea Mirabella, Gatti, Pavesi, Bianchi, Ludovici
Inheritance and gift taxes Legislative Decree No 346 of 31 October 1990 (the Italian Inheritance and Gift Tax Consolidated Act, or TUS) expressly regulates the tax treatment of trusts for inheritance and gift tax purposes. In particular, the relevant provisions of the TUS address the following key aspects. • Territorial scope of the inheritance and gift tax – where the settlor is an Italian tax resident at the time assets are transferred to the trust, inheritance and gift tax applies to all assets subsequently dis - tributed to the beneficiaries. If the settlor is a non- resident, the tax applies only to Italian-situs assets. • Tax treatment of transfers made through trusts – transfers through a trust are subject to inheritance and gift tax only when the beneficiaries receive the assets. Tax rates and exemptions depend on the relationship between the settlor and the benefi - ciary. • Option for the advance payment of tax upon transfer to the trust – the settlor (or, in the case of a testamentary trust, the trustee) may elect to pay inheritance and gift tax when assets are contribut - ed to the trust. Tax is computed by reference to the value of the endowed assets and the relationship between the settlor and the beneficiaries. Once this option is exercised, subsequent distributions to beneficiaries within the same tax category are not taxed again. 1.2 Exemptions Exemptions From Income Tax and Property Taxes The main exemptions from income and wealth taxes include: • the exemption on capital gains on the sale of prop - erties held for more than five years (see 1.1 Tax Regimes and 1.5 Taxation of Real Estate Owned by Non-Residents and Non-Citizens ); • the exemption on capital gains on the sale of properties received by succession (see 1.5 Taxa- tion of Real Estate Owned by Non-Residents and Non-Citizens ); • the exemption on capital gains on the sale of properties used as a main residence by the seller and his/her family for most of the period between
• Transparent trusts, ie, trusts with identified benefi - ciaries, whose income is attributed and taxed on a transparency basis to the beneficiaries. The identi - fied beneficiary is the holder of the right to request from the trustee the attribution of the part of the income that is attributed to him/her on a transpar - ency basis. • Opaque trusts (or discretionary trusts), ie, trusts with no identified beneficiaries, whose income is taxed in the hands of the trust. In this case, the trustee has the discretionary power to choose whether, when, to what extent and to whom to attribute the trust income. • Mixed trusts (both opaque and transparent), for example, where the trust deed provides that part of 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. A trust is fiscally disregarded where it merely inter - poses between the settlor and the underlying assets, particularly where the settlor retains, directly or indi - rectly, powers over the trust assets or the trustee’s decisions. In such cases, the income arising from the assets formally held by the trust is attributed directly to the settlor. Indicators of tax interposition include revocable trusts and trusts where the trustee cannot exercise its discretionary powers without the settlor’s or beneficiary’s consent (Circular Letter No 61/E of 27 December 2010). 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.
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