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TAX ALERT 2019/03

Italian Government enacts new tax rules dealing with distributions made by certain non-resident trusts to resident beneficiaries

Italian Government has recently enacted Law Decree No. 124 of 26th October 2019 (to be converted into law within 60 days), which deals inter alia with the tax treatment of income distributions from certain non-resident trusts to Italian resident beneficiaries (individuals and non-business entities).

In particular, article 13 of the Law Decree:

  1. provides that distributions of trust income from fiscally opaque trusts, established in jurisdictions where they benefit from a low tax regime, are taxable in the hands of the recipients (trusts established in EU and EEA Member States are excluded from the scope of the rule); and
  2. introduces a presumption pursuant to which all trust distributions qualify as income distributions, unless adequate evidence is provided that capital has been distributed.
A low tax regime is deemed to exist where the nominal (or, under certain conditions, the effective) tax rate applied to the trust is lower than a half of the Italian corporate tax rate.

It is worth noting that the new rules:

  1. should not apply to trusts that are regarded as “transparent” for Italian tax purposes (i.e. where the beneficiaries have a fixed right to receive income from the trust) and to trusts that are disregarded for Italian tax purposes;
  2. implicitly confirm that income distributions made by fiscally opaque trusts, other than those subject to a low tax regime, are not subject to tax in the hands of the recipients;
  3. confirm that the income of a fiscally opaque trust subject to a low tax regime is taxed in Italy only when such income is paid to the Italian resident beneficiaries;
  4. also confirm that distributions of trust capital are not subject to income tax.