Income attributed to an Italian-resident beneficiary of a transparent foreign trust must be determined in accordance with the tax rules of the jurisdiction in which the trust is resident or established.
This was clarified by the Italian Tax Authority in Ruling No. 165/2026, concerning a trust established in the United States that became transparent following the settlor’s death.
In the case under consideration, the trust deed provided that, upon the death of the surviving settlor, the trust assets would be distributed in equal shares among her three children, without the trustee having any discretion in this respect. Each child therefore qualified as an identified beneficiary, being legally entitled to claim their respective share of the trust income.
Pursuant to Article 73(2) of the Italian Income Tax Code (TUIR), the trust’s income must therefore be attributed to the Italian-resident beneficiary:
- irrespective of whether it is actually distributed;
- in proportion to the share established by the trust deed;
- by taking into account all trust income attributable to the beneficiary, including income arising abroad;
- in accordance with the tax rules applicable in the jurisdiction in which the trust is established.
The income thus attributed qualifies as investment income under Article 44(1)(g-sexies) of the TUIR.
Conversely, the Italian Revenue Agency ruled out the application of the presumption laid down in Article 45(4-quater) of the TUIR, under which, where it is not possible to distinguish between income and capital, the entire amount received is treated as income. As a general rule, this provision applies to distributions made by opaque trusts established in low-tax jurisdictions, rather than to income attributed by a transparent trust to an identified beneficiary.
