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For the purposes of Italian indirect taxation, the transfer of assets to trusts has been subject to lengthy debate, including different approaches from Italian tax authorities and case law. More recently, the tax framework has reached greater stability, increasing the use of trusts for wealth‑ and tax‑planning purposes.

Although Italian tax authorities hold the view that transfers are taxable, akin to an ownership transfer under Italian tax law, part of the jurisprudence believes that taxation should be deferred once the trust’s assets are distributed to its beneficiaries.

The approach of the tax authorities could lead to a relatively low but immediate tax burden. Inheritance and gift taxes (IGT) currently applicable in Italy are:

• 4 per cent for the spouse and direct descendants or ancestors;
• 6 per cent for siblings, relatives up to the fourth degree and relatives‑in‑law up to the third degree; and
• 8 per cent for other transfers.

The case law

In recent years, several judgments from the Italian Supreme Court (the Court) openly rejected the view of Italian tax authorities and stated that indirect taxes are applicable only when the transfer can be considered ‘definitive’.[1] In other words, the taxes are applicable when the beneficiary actually receives the assets included in the trust fund from the trustee.

The case‑law approach has recently been shared by tax authorities on a specific case where no actual transfer of assets occurred as the settlor and the beneficiary of the trust were the same person.[2],[3]

However, the interpretation of the tax authorities is not clear enough and additional official guidelines are expected in the near future. It goes without saying that a specific tax analysis based on a case‑by‑case approach will still be worth implementing to mitigate potential tax liabilities.

Despite the most recent view taken by the mentioned case law, certain international trust structuring issues are still open. For example, the application of IGT on the assets once distributed to the beneficiaries could be excluded if the transfer of the assets to the trust was not subject to taxation because the assets were located outside of Italy and held by a non‑Italian resident settlor.

A recent decision by the Court added that residential property transfers to a trust can,[4] in principle, benefit from the so‑called ‘price‑value’ rule for the purposes of indirect taxation. This rule limits the tax authorities’ power of assessment in cases where the real estate value declared in the transfer deed is at least equal to the cadastral value of the property. Transfer taxes are then applicable on the cadastral value rather than on the market value of the property, which tends to be higher.

The trust’s tax regime is particularly relevant when dealing with the transfer of real estate properties. Following the approach of the Court, the taxpayer can benefit from a relevant tax benefit/deferral, allowing greater flexibility when implementing wealth‑ and tax‑planning strategies. Previously, the taxpayer was required to pay gift taxes as soon as the property was transferred, with rates from 4 to 8 per cent, in addition to proportional mortgage and cadastral taxes.

It is therefore advisable to follow future developments in relation to indirect taxation of capital distributions by trusts. These, including additional guidelines issued by the Italian tax authorities in the near future, will likely contribute to achieving another important milestone for clients and professionals alike.