The institution of a trust is tax neutral

In the decision No. 2334 of 2024, the Supreme Court clarified that the trustee is subject to taxation at a flat rate, as no actual transfer of assets takes place.

The case
The application for reimbursement of taxes paid by the applicant as trustee of two trusts – pursuant to Legislative Decree No. 262/2006 – was rejected at first and second instance.

According to the judges, Article 2, par. 47 to 53 of Legislative Decree No. 262 of 3 October 2006 introduced a new tax on destination bonds at a rate of 8%, although the transfer of assets might not take place.

The decision
The Supreme Court welcomes the applicant's appeal. The transfer from the settlor to the trustee is free of charge, has no translation effect and is not the final assignment. The trustee must administer the assets in a segregated asset regime with a view to transferring them to the beneficiaries and must therefore be subject to flat-rate taxation for both registration tax and mortgage and cadastral tax. 

There is no real transfer and no real enrichment at this stage, but only in the hands of the beneficiaries, who will be called upon to pay the proportional tax. For the purposes of the application of succession and donation taxes, registration taxes, mortgage taxes and cadastral taxes, an actual transfer of assets is required, pursuant to art. 53 of the Italian Constitution, through a permanent and not merely instrumental allocation of assets.

Thus, the taxable transfer is neither the trust instrument nor the deed of trust between the settlor and the trustee, but only the deed of final allocation to the beneficiaries.

The overmentioned judgment gives continuity to the guidelines expressed by the Italian Revenue Agency itself, most recently, in Circular No. 34/2022 (‘Taxation of trusts for direct and indirect tax purposes’).

With this document, the Revenue Agency, accepting the criticisms expressed by users and the recent jurisprudence on the subject (see the rulings of the Supreme Court no. 24153 and 24154 of 2020), recognised that ‘the deed of incorporation by which the settlor expresses his will to create the trust (...) is subject to registration tax at a flat rate' and, at the same time, that 'the constitution of the destination restriction does not integrate an autonomous condition for the succession and donation tax purposes, but it is necessary that an actual transfer of assets is achieved through a stable and not merely instrumental asset allocation’.