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Tax Pills

  • Italy’s new fiscal rules on offshore, opaque and non-resident trusts

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    In the draft Circular accessible for public consultation until September 30th, ample space is also reserved on the taxation of non-resident trusts located in low-tax States or territories. Particularly, for opaque foreign trusts, established in jurisdictions which, with reference to the income produced by the trust, are considered to have privileged taxation, the attributions of income by the trust are subject to taxation by the resident beneficiary. In this case, in fact, the reduced taxation of the foreign trust would correspond, however, to the taxation of the resident beneficiary for the attributions of income by the trust. This interpretative position and the correspondent legislative change are both based on the circumstance that the incomes are not subject to adequate taxation in the jurisdiction of establishment of the trust before being attributed to subjects residing in Italy.

    Taxation of offshore trusts—resident but non-domiciled - In the event that the trust is not considered to be fiscally resident in a State, according to the legislation of that State, despite the fact that the administration of the trust is mainly carried out there, for the purposes of applying the rule in question, the trust must in any case be considered "Established" in that country if the income produced by the trust is not subject to any taxation in that country either on the trust or on the non-resident beneficiaries. The classic example is that of "resident but not domiciled"” trusts.

    The peculiar British law on offshoring trusts - This circumstance can occur, by way of example, with reference to trusts with multiple trustees in the United Kingdom. In this case, if the settlor is neither resident nor domiciled there (at the time of the establishment of the trust and any subsequent contributions) and there is at least one trustee not resident or not domiciled in the United Kingdom, the trustees (considered as single deemed person) are not regarded as resident there, regardless of whether there is a majority of English trustees or whether the trust is administered in the United Kingdom. Consequently, this type of trust, despite having its administrative headquarters in the United Kingdom, enjoys the fiscal advantages reserved for offshore trusts in that country. Indeed, similar considerations also apply in the event that the trust is deemed to be resident in an EU or EEA State, if it benefits from a tax (exemption) regime provided for offshore trusts (e.g. trusts in Cyprus).

    The adoption of a specific mechanism to detect the tax treatment of foreign trusts is fundamental - In this regard, it seems appropriate to underline that the sole purpose of providing a valuable method of identifying the tax regimes applied to foreign trusts in the countries of establishment that prefigure a privileged regime constitutes a decisive tool in the attempt to adopt a valued anti-avoidance scheme, so effective to limit using offshore opaque trusts to pay less taxes. Moreover, the provision in question clearly provides that foreign States are or are not considered to have privileged taxation with exclusive reference to the treatment of income produced by trusts resident there. Therefore, the main factor that is taken into consideration, for the purposes of qualifying capital income, is the tax treatment of trusts. It’s therefore believed that, in order to identify foreign opaque trusts that enjoy a privileged tax regime, reference should be made to specific rule which recognizes such a regime where the nominal level of taxation is less than 50 per cent of that applicable in Italy.

    The discriminating factor of the 50 per cent effective taxation - In conclusion, the income of an opaque trust paid to an Italian individual is always considered taxable in Italy if the nominal level of taxation of the income produced by the trust is lower than 50per cent of that applicable in Italy. In such cases, any special regimes applicable to the trust must also be taken into account.

    Stefano Latini

    URL: https://fiscooggi.it/tax-pills/articolo/italys-new-fiscal-rules-on-offshore-opaque-and-non-resident-trusts
  • New clarifications in sight on the discipline of trusts. The Revenue Agency Circular draft will be available online until 30th September for a public consultation

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    The Circular clarifies various interpretative doubts in relation to the regulatory changes that have occurred in the last year and which have concerned trusts mainly on income taxes, the discipline of fiscal monitoring and the IVAFE, the wealth tax on financial assets, especially those held abroad, and the IVIE, the wealth tax on foreign real estate, both taxes due by trusts resident in Italy.

     

    The Agency launch an open consultation on its official website - The text of the Circular, still in draft form, will be publicly accessible for consultation on the website of the Revenue Agency. Interested parties, business and financial operators, consulting companies and law firms, will have time until 30th September 2021 to send their comments and proposals either to amend the draft text or to add further regulatory passage. All these suggestions or inputs will then evaluated by the Agency, in view of their possible use in the drafting of the Circular in its ultimate version.

    How to send proposals to the Agency – New insights and suggestion on how to modify the Circular draft can be sent to the following email address dc.pflaenc.settoreconsulenza@agenziaentrate.it. Once the public consultation phase  will be over, the Revenue Agency will publish the comments received, excluded those containing an express request for non-disclosure.

    Tax discipline of trusts - The fiscal discipline of the trust has recently been the subject of interventions by the Italian Legislator as well as several rulings of the Italian Supreme Court, orCassazione, especially in relation to indirect taxation. Indeed, according to the Italian rules, trusts are generally subject to different tax regimes depending on whether the beneficiaries are identified and have an actual right to the amounts (so-called transparent trust) or not (so-called opaque trust). In the case of transparent trusts, tax is levied on the beneficiaries on an accrual basis, for IRPEF purposes, while for opaque trusts taxes would be paid at the level of the trust, therefore for IRES purposes. In addition, the Italian recipient of a distribution from an opaque trust would be taxed in Italy, provided that the trust is located in a tax haven. The scope of this provision was to hit trust structures located in tax havens by derogating to the ordinary trust taxation principles so as to create a peculiar tax regime for anti-avoidance purposes. Unfortunately, this regime lacks clarity as it does not specify whether potential foreign withholdings can be deducted and what definition of “tax haven” should be considered for its purposes. Furthermore, the present legislation does not clarify the territoriality rules applicable to foreign-sourced incomes derived by foreign trusts. In the light of all these doubts and critical issues, the new Circular is expected to provide a wide range of clarifications.

    Stefano Latini

    URL: https://fiscooggi.it/tax-pills/articolo/new-clarifications-sight-on-the-discipline-of-trusts-the-revenue-agency-circular