New Reporting Obligations For Trusts In Italy

What professional trustees and beneficiaries need to consider

Non-resident trusts under increased scrutiny

Italy was the first civil law country to ratify the Hague Trust Convention. This was followed by the introduction of express rules dealing with the tax treatment of trusts in 2007.

Overall, the statutory rules (coupled with low gift and succession taxes) are relatively benign and it has been possible to use trusts to defer income and capital gains tax by holding assets through non-Italian resident trusts (broadly, discretionary and irrevocable trusts that (a) are effectively managed abroad, (b) are not comprised mainly of Italian situate assets and (c) are not established in a blacklisted jurisdiction).

However, at the end of 2010 the Italian tax authorities released a circular letter in which they outlined a number of scenarios in which they would effectively disregard trusts (by treating them as 'fictitious interpositions'). This approach has been widely criticised by commentators as being too broad-brushed.

New tax reporting obligations

In the latest instalment in what seems to be an increasingly hostile saga for trusts, the Italian government has effectively extended the existing reporting obligations (under which Italian taxpayers must disclose any non-Italian assets they own, whether income-producing or not) to trust beneficiaries.

Strictly, the new rules (which entered into force on 4 September 2013) apply to 'beneficial owners' of offshore structures. However, the term is defined by reference to the anti-money laundering rules, which contain a wide definition of 'beneficial owner' - much wider than its tax law counterpart, because of the different scope of the relevant rules (the aim of any anti-money laundering legislation is to identify any person who is behind a legal structure, regardless of their power to enjoy its income, which is what tax laws generally seek to tax).

Going forward, the new reporting-cum-anti-money laundering rules will apply to the following scenarios: '1) if the future beneficiaries have already been determined, the beneficiaries of 25% or more of the assets; 2) if the beneficiaries have not yet been determined, the class of persons in whose main interest the [trust] has been established/acts; 3) the person(s) who exercise control in respect of 25% or more of the [trust] assets'.

Offshore trustees1and Italian resident beneficiaries need to consider the terms of their trusts and decide whether it falls...