The Italian Decree – Financial Bill 2019 – Trusts and Taxation in Italy: Change for Foreign Opaque Structures

Nov 8 , 2019

The Decree provides certain amendments to the taxation rules applicable to Italian tax resident beneficiaries of foreign so called “opaque” trusts. The meaning of opaque is to be considered under Italian tax rules, where opaque trusts are defined as the ones where the beneficiaries are not identified and therefore trusts are subject to corporate income tax. The opposite of “opaque” trusts are “transparent” trusts, where the beneficiaries are fully identified and therefore subject to direct taxation as the trust for tax purposes is considered a flow-through entity.

The issue of black list or white list trusts in Italy is well known to International practitioners. In our Firm, we have watched this rule evolve and this new Decree must be underlined as not harmful in the general context of the practice. The new rule is aimed at targeting black list trusts and to foreign trusts where accounting has not made any distinction between income and capital, which is – for real structure and proper context – very peculiar if mismatched.

Herein after we outline how the rules have been changed by the Decree.

New Article 44, paragraph 1, letter g-sexies) of ITCA expressly states that “income paid to Italian tax resident beneficiaries by trusts and similar institutions established in States that are considered low tax jurisdictions under Article 47-bis of ITCA, even if the beneficiaries cannot be deemed as identified beneficiaries under Article 73”. The direct implication is that income from capital is to be taxed in the hands of the beneficiaries upon distribution. The practical meaning is that “black list” trusts distributions must be classified as income.
Furthermore the Decree introduces a presumption according to which distributions made by foreign (opaque) trusts to Italian tax resident beneficiaries must be fully subject to tax in the event that no evidence that the amount distributed represents a capital distribution (not subject to taxation) rather than a distribution of the income accrued by the trust.

We will monitor the evolution of the debate in Parliament and the conversion into law of this article 13 of the Decree. It may be useful to check whether the client or prospective client is in the position of being classified as black list and/or with an accounting policy which made no distinction between capital account and income account. Generally speaking the trusts we previously advised on are in a very different position to the one targeted by the Decree and therefore may well proceed with their ordinary business.

Should you require further information, or if you have queries, our Wealth & Estate department, in particular with our Trusts focus group, are more than happy to be involved at our London or Milan offices.