Trusts: between Inbound and Outbound taxation

On 6 June 2024, the CNDCEC, in cooperation with the Fondazione Nazionale Commercialisti, published a research paper on trusts established prior to the 2022 Revenue Agency Circular No. 34/E, in which it examines the tax implications of trusts established prior to the publication of the circular in question and proposes interpretative solutions to ensure the protection of taxpayers' trusts and the correct application of taxes, in accordance with the new provisions.

The paper highlights in particular how the transition from ‘inbound’ to ‘outbound’ taxation requires a resolution of intertemporal coordination issues for trusts established before the new guidance.

Indeed, the Circular introduced a significant change in the approach to the taxation of trusts from ‘inbound’ to ‘outbound’ taxation.

Among the main issues discussed in the research paper are the development of case law and the criticism of the doctrine of ‘inbound’ taxation, with the Court's now established orientation towards ‘outbound’ taxation.

In particular, the paper analyses the rulings of the Supreme Court that have influenced the tax approach to trusts, highlighting an initial application of the tax at the time of the contribution of assets to the trust.

In addition, the issue of the taxation of the trust deed is addressed, focusing on the tax relevance of the trust deed and the application of indirect taxes to such institutions established prior to the Circular.

The applicable exemptions and reliefs, such as the “FIRST HOME” relief and the transfer of shares not subject to inheritance and gift tax, are also examined.

Our staff remains available for further information.