Offshore Trust with italian Grantors/Beneficiaries

When an offshore Trust deals with Italian grantors or beneficiaries in order to avoid consequences with Italian tax authorities.

In fact, with Fiscal Bill 2007 Trust has been inserted in Italian tax legislation in the current article 73 of Italian income tax code (TUIR). The dispositions present in the article have been disclosed with financial ministerial circular 48/E issued on August 06 2007.

The paragraph 3 of this financial ministerial circular 48/E deals with the residence of Trust. Here are indicated the criteria through which the financial administration can figure out if a Trust is resident in Italy or can be presumed to be resident in Italy.

First of all, a Trust is considered resident in Italy according to normal domestic rules on residence. These rules deem a legal entity to be resident in Italy if at leastone of the three following conditions is accomplished:

  1. the legal seat (that is a registered office or place for service) is in Italy;
  2. the place of effective management is based in Italy;
  3. Italy is the country where the business activities are primarily carried on.

So, for the second criterion, it is necessary to identify the seat of management, when the Trustee is a Trust company with a stable organization; in other case you have to identify the fiscal seat of the Trustee.

The last criterion refers to the country of primarily activity of the business developed by the Trust, in case of multiple country, it shall be considered to be resident in Italy if the prevalent activity is developed there.

More strictly criteria are focused in the legislation for the Offshore Trusts settled in a non-white listed country, i.e. a country that does not allow the exchange of information with Italy. In this case are laid some special anti-abuse rules, that give the presumption of residence in Italy if can be proven that:

  • at least one of the grantors and at least one of the beneficiaries is an Italian tax resident; or
  • following the constitution of the trust, an Italian resident individual or entity transfers the ownership (or any related rights) of real estate to the trust.
  • Trust owns or controls an Italian entity or it is owned or controlled by Italian residents.

In these cases, the Trust will go under the lens of tax authorities that will consider the trust as Italian tax resident. Consequently it will be subject to the Italian direct and indirect taxation. However, the taxpayer has the right to prove the contrary.