Global Tax Alert: Country specific – Italy

For the purposes of indirect taxes, the tax regime of transfers to trusts was subject to discussions and different approaches. While the Italian tax authorities held the view that the transfer was taxable per se (as akin to an ownership transfer), scholars and part of the jurisprudence took the position that taxation should be deferred at the moment of the actual distribution of the trust’s assets to the beneficiaries.

In the last two years, several judgements from the Italian Supreme Court openly rejected the view of the Italian tax authorities and stated that indirect taxes are applicable only when the transfer can be considered definitive – so generally when the beneficiary receives the asset.

The case law approach seems to have been recently accepted by the tax authorities (ruling no. 106/2021) in a specific case where no actual transfer occurred since the settlor and the beneficiary of the trust were the same person. However, the interpretation of the Italian Tax Authorities is not clear enough and specific tax analysis is still required based on a case-by-case approach.

Furthermore, a recent Supreme Court decision (no. 3073/2021) added that residential property transfers to a trust can in principle benefit from the so-called “price-value” rule (which limits the tax authorities’ power of assessment in case the value declared is at least equal to the cadastral value of the property).

The tax regime of the trust is particularly relevant when dealing with transfer of real estate properties. Following the approach of the Italian Supreme Court, the taxpayer can benefit from a tax deferral and this would allow greater flexibility in implementing wealth planning strategies. However, under the other approach, the taxpayer could also opt to pay gift taxes immediately benefitting from low current rates from 4% to 8%.