The new budget law (L.157/2019), implementing the tax decree (Legislative Decree 124/2019) has introduced some innovations regarding the taxability of the fruits received by beneficiaries in the context of a foreign trust (transparent or opaque).
As is known, from a fiscal point of view, the trust can be transparent or opaque.
A brief mention of the two trust figures:
The transparent trust is the trust with identified income beneficiaries, whose income is attributed to the beneficiaries for transparency;
The opaque trust is the trust without identified income beneficiaries, whose income is directly attributed to the trust itself.
In the opaque trust, any beneficiaries can receive the income, or part of the income, of the Trust only following a discretionary choice made by the Trustee.
A foreign trust of interest to the Italian State is defined as one established abroad and in which the trustee is a foreign entity, natural person or company and assets existing abroad and also in Italy are transferred to the trust.
The art. 1 paragraph 74 L. 296/2006 has included the trust among the commercial and non-commercial entities among the subjects that pay the IRES referred to in art. 73 of the Presidential Decree. 917/1986.
An opaque trust pays IRES at 24% as a non-commercial entity while, in a transparent trust, the income is attributed directly to the beneficiaries and therefore discounts the progressive IRPEF rates.
It should be noted that the legislator has provided, as a general rule, that the income of the trust is taxed in the personified trust which, depending on the case, will be classified as a commercial entity or non-commercial entity.
Like non-commercial entities, the trust will be taxed on various categories of income like an individual (for example, rents will be considered property income while dividends are considered capital income.)
Having briefly summarized the general lines, attention turns to the new budget law which, in particular, modifies the art. 44 of the Consolidated Law on Income Taxes, introducing the obligation to tax income for any reason distributed by the foreign trust, even if opaque (in the specific case in which it is established in a State with "privileged taxation" pursuant to art. 47-bis TUIR), to Italian recipients; such income must be treated as capital income and therefore taxed in the taxpayer's IRPEF.
Some observations on these legislative innovations.
In the foreign transparent trust, if the income is not distributed, but remains in the trust for various purposes consistent with the purpose of the trust, the prerequisite for the application of IRPEF or other income taxes to the beneficiaries does not apply, because they do not receive income .
In the foreign opaque trust, considering that there are no defined beneficiaries, there can be no distribution of income by the trust, and at the moment the conditions for the application of the tax changes referred to in the budget law do not exist.
It seems that the legislator, aware of the limits of the tax legislation regarding foreign opaque trusts, has another tax strategy in mind but at the moment these are only hypotheses and, as such, no comment is possible.
Milano, January 28th 2020.
Avv. Giovanni Babino
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