The current wording of article 73, paragraph 3 of the Italian Tax Consolidated Act (hereinafter TUIR) (tax residence of companies and entities), as amended by Legislative Decree 209/2023 implementing the tax reform on international taxation, establishes that companies and entities are tax resident in Italy if they have in the territory of the State, for the greater part of the tax period:
(a) their registered office; or
(b) the place of effective management (former place of administration); or
(c) the main place of ordinary management (formerly the main object of its business).
The amendments to the provisions of article 73 of the TUIR also apply to trusts, as the same criteria of connection with the territory of the State set forth in paragraph 3 of Article 73 apply to them.
Constituent elements of the residence of companies and trusts
Remains unchanged the first of the three connecting factors, i.e. the objective criterion of the registered office, which gives prominence to a formal legal element and is identified with the registered office indicated in the memorandum or articles of association.
This criterion, in fact, is not applicable to trusts since, despite their passive subjectivity, they do not represent a legal entity but a legal/trust relationship established by a person in the interest of a beneficiary or for a specific purpose.
- Place of effective management
The criterion of the ‘place of administration’ is replaced with that of the ‘place of effective management’, meaning 'the continuous and coordinated taking of strategic decisions concerning the company or entity as a whole' (Art. 73 paragraph 3 TUIR).
The legislator, by adopting this expression, intended to harmonise domestic legislation, with regard to the location criterion of the residence of companies, with both the international practice and the criteria for determining tax residence provided by double taxation conventions.
The administration of the trust is the institutional task of the trustee, thus the place where the trustee habitually carries out its 'strategic' activities and takes major decisions concerning the trust.
The decree also replaces the ‘main object’ criterion with the criterion of main ordinary management, meaning 'the continuous and coordinated performance of the acts of day-to-day management concerning the company or entity as a whole' (Article 73(3) of the TUIR). With the introduction of this criterion, emphasis is placed on the actual performance of the acts relating to the ordinary management of the company, and thus, on the so-called day-to-day management.
The use of the expression 'on a principal basis' avoids an excessive extension of the personal connection to taxation, when only part of the activity is carried out in the territory of the State through a permanent establishment.
In addition, the introduction of this criterion and the elimination of the main object criterion makes it possible to overcome those interpretations that brought back to Italy the tax residence of companies that merely have assets there (such as holding companies or real estate companies), without actually providing for their day-to-day management there on a principal basis.
Both the new article 73 paragraph 3 and article 5 paragraph 3 letter d) of the TUIR shall apply from the tax period following the current one on 29.12.2023 (date of entry into force of Legislative Decree 209/2023) and, therefore, come into force from January 1st, 2024 for persons with a tax period coinciding with the calendar year.
For the purpose of verifying residence, the connection between the person and the territory represented by the registered office or place of effective management or main ordinary management must remain 'for the greater part of the tax period'.
This is therefore a period of at least 183 or 184 days.
- Presumptions of residence – Esterovestizione (the fictitious location abroad)
Finally, the legislature has reworded paragraph 5-bis of article 73 of the TUIR as a consequence of the introduction of the new criteria of ‘place of effective management’ and ‘ordinary management’, with respect to the relative presumption of ‘esterovestizione’ (fictitious relocation abroad).
Article 73 co. 3, 5-bis and 5-ter of the TUIR identifies a relative legal presumption of residence in the territory of the State of trusts and companies or entities fictitious relocation abroad.
Under the new wording of the rule, therefore, unless proven otherwise, companies and entities, which hold controlling interests (within the meaning of article 2359, paragraph 1, of the Civil Code) in the entities referred to in subparagraphs (a) and (b) of paragraph 1, are deemed to be resident in the territory of the State if, alternatively: -
(a) they are, in turn, controlled, even indirectly, by persons resident in Italy; or
(b) they are administered by a board of directors, or other equivalent management body, composed predominantly of directors resident in the Italian territory.
- Presumption of residence of trusts
The new wording of c. 3 of article 73 of the TUIR, amended from a purely formal point of view by Legislative Decree 209/2023, provides for two cases in which the residence of trusts set up in States or territories not on the ‘white list’ is deemed to be resident in Italy:
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- at least one of the settlors and at least one of the beneficiaries of the trust are tax residents in the territory of the State; or
- subsequent to their set-up, a person resident in the territory of the State makes an addition in favour of the trust which implies the transfer of ownership of real estate property or transfer of rights in the real estate property, including shares, or destination restrictions on the same property.
As mentioned above, the prerequisite for the attraction of residence in the territory of the State is the fact that the trusts are established in countries that do not belong to the so-called "white list" (i.e., countries with privileged taxation); to this end, reference must be made to the list approved by the Ministerial Decree of 4.9.96 and subsequent amendments and additions.
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The information provided in this article is of a purely general nature and is not a substitute for specific advice that may be requested here.
