The recent reform of inheritance and gift tax in Italy has raised important interpretation issues regarding the application of tax exemptions for transfers of businesses and shareholdings through trusts. The debate focuses in particular on the possibility of benefiting from these exemptions when opting for advance taxation at the time of segregation of assets into trust, rather than at the time of their transfer to the beneficiaries.
The regulatory framework for tax concessions
Legislative Decree 346/1990 (the Inheritance and Gift Act) provides that inheritance and gift tax is generally levied upon gratuitous transfers of assets, due to death or made by living persons, including transfers made through trusts.
However, Article 3, paragraph 4-ter, establishes an important exemption for transfers of businesses, business branches, or shareholdings.
The relief applies when the transfer is made to a spouse or descendants, subject to specific temporal and control requirements. In particular, the beneficiaries must acquire or increase a controlling shareholding in the company and hold it for at least five years from the date of transfer. In the case of business transfers, the business activity must be continued for the same minimum period.
The recent amendments introduced by Legislative Decree 139/2024 extended the application of the exemption to cases involving an increase in existing controlling shareholdings and transfers of companies that are resident in the EU or the European Economic Area.
The rules applicable to trusts and the new option for advance taxation
Regulatory developments concerning the Inheritance and Gift Act have led to the introduction of Article 4-bis, which establishes the principle of ‘exit taxation’ as the ordinary regime for trusts. This means that inheritance and gift tax is normally applied at the time the assets are transferred to the beneficiaries, rather than at the time they are put into trust.
However, the reform has preserved the option of ‘incoming taxation’, allowing taxation to be brought forward to the time when the assets are contributed to the trust. This choice makes it possible to avoid subsequent taxation, provided that the final beneficiaries belong to the same categories.
Eligibility for the exemption for trusts
Prior to the recent reform, the Italian Revenue Agency had already clarified that the exemption for companies and shareholdings could also be applied to transfers made through trusts. Circular 48/E of 2007 and Resolution 110/E of 2009 identified the requirements for accessing the relief, including:
A minimum duration of five years for the trust;
The designation of a spouse or descendants as final beneficiaries; and
Continuity in the business or corporate control for at least five years from transfer.
Key issue surrounding the interpretation of the advance taxation option
A problematic issue regarding the advance taxation option arises from the new instructions for the inheritance tax return form contained in the Provision of the Director of the Revenue Agency No. 47335/2025. The tax authorities argue that the option for advance taxation precludes the possibility of benefiting from the exemption, even at the time of subsequent transfer to the beneficiaries. Indeed, the instructions for the tax return form at issue read that “in case of [the] option for advance taxation, the possibility to benefit from exemptions or reliefs is precluded also upon the subsequent transfer of assets to the beneficiary”.
According to this interpretation, transfers of businesses or shareholdings through trusts would not be eligible for the relief if advance taxation is opted for, unlike what would happen with exit taxation or direct transfers by donation or succession.
Even though it is expressly stated with regard to testamentary trusts, the position held in the ministerial forms should also be applied to living trusts, thus expanding the scope of the exclusion from the exemption in the case of advance taxation.
The critical issues with the Italian Revenue Agency’s position
The interpretation applied by the Revenue Agency raises some doubts and is, the author believes, unsupportable.
Firstly, the generic reference to “transfers” in the context of the provision – made in relation to the scope of application of inheritance tax, the exemption for businesses and companies, and the rules on trusts – should ensure uniform treatment across the different methods of generational transfer, regardless of the tax regime chosen.
It is also pointed out that the exemption was already granted when taxation was generally levied upon a contribution into trust, as demonstrated by earlier statements of practice such as Circular 48/E of 2007 and Resolution 110/E of 2009. There would therefore be no logical reason to exclude this possibility in the new regulatory context, where exit taxation is the general rule.
In addition, a crucial aspect concerns the moment when the requirements for exemptions should be assessed. Indeed, they should be verified at the time of actual transfer to the beneficiaries, for the reason that it is at that moment that tax liability is determined – as stated by the Revenue Agency in Circular 34/E of 2022.
Final thoughts on the Revenue Agency’s interpretation
A revision of the ministerial instructions form would be desirable, so as to clearly recognise the possibility of applying the exemption in the case of advance taxation. The interpretation held by the Revenue Agency risks creating an unjustified penalty for transfers through trusts that opted for advance taxation, despite full compliance with the statutory requirements.
Disclaimer: The information contained in this article cannot be considered as legal advice. Alma LED does not accept any responsibility in relation to the use of this publication without the collaboration of its professionals.
