Foreign trust and real estate company: the disposal of shareholdings is taxable in Italy
In Ruling No. 201 of 5 November 2026, the Italian Tax Authority clarified that the disposal of shareholdings in a foreign company owning real estate located in Italy cannot be treated, through the application of the rules on interposed entities, as a direct sale of the underlying property. Accordingly, any capital gain realised by the foreign trust holding the shareholdings is taxable in Italy, even where the underlying property has been held for more than five years.
The case concerned a discretionary and opaque trust established in the British Virgin Islands in 1997, which owned the entire share capital of a foreign company whose sole asset was a residential property located in Volterra, Italy, held for more than five years.
The trustee argued that the company should be regarded as a fiscally interposed entity in relation to the trust, as it had no independent organisational structure, was financed by the trust itself and was used exclusively to hold the property, which was made available to the beneficiaries as a holiday home. This position was further supported by the organisational relationships between the trustee and the company's director.
The objective was to obtain recognition of the interposition under Article 37(3) of Presidential Decree No. 600/1973, so that the proposed disposal of the shareholdings could be treated as a direct sale of the property. According to the trustee, this classification would have allowed the application of Article 67(1)(b) of the Italian Income Tax Code (TUIR), thereby excluding taxation of the capital gain on the grounds that the property had been held for more than five years.
The Italian Tax Authority rejected this interpretation. The ruling procedure provided for under Article 37(4) of Presidential Decree No. 600/1973 allows taxpayers to establish which person should be taxed on income formally attributed to another person, but cannot be used to alter the legal nature of a transaction.
In the case examined, the subject of the disposal remains the shareholding rather than the property, which continues to be owned by the foreign company. Article 23(1-bis) of the TUIR, introduced by Law No. 197/2022, therefore applies. Under this provision, income arising from the disposal of shareholdings in foreign companies is deemed to be Italian-source income where, at any time during the 365 days preceding the disposal, more than 50% of the value of those shareholdings derives, directly or indirectly, from real estate located in Italy.
The ruling therefore confirms that holding the underlying property for more than five years does not exclude taxation of the capital gain arising from the disposal of the company that owns it.
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