The Italian tax agency recently finalised Circular 34/E providing guidance in the application of Italian tax to trusts. This guidance, initially released in draft form for consultation in August 2021 and later modified from gathered feedback by tax practitioners and businesses, thoroughly discusses the current income tax rules currently applicable to Italian beneficiaries of non-resident transparent and opaque trusts. Additionally, it simplifies the extend of other taxes such as inheritance and gift tax, wealth tax and the IVIE and IVAFE levies on any assets held overseas.
Circular 34/E also outlines the impact of recent court decisions on the rules applicable to the beneficiaries as well as on Law Decree No.124 of October 26. 2019. This decree stated that any income of a non resident opaque trust must be taxable to the Italian beneficiary at the time of distribution if the trust is established in any state which levies a rate less than 50% of Italy's effective rate. Moreover, if the income of the trust is undistinguishable from the principal, the full distribution of income is taxable.
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