A donation is the contract by which a donor enriches, in a spirit of generosity and therefore without demanding a counter-performance, a beneficiary donee by transferring his or her right or assuming an obligation towards him. According to a diffused rational approach, donation during life is a choice never to be made. According to a constant Italian sentiment, donation is a personal and intimate delight during the life. Moreover, often ageing persons have strained relations with children they had from previous marriages. Basically, there exist two points of view: that of a lawyer and that of a financial planner. According to the existing legislation in Italy, taxes are paid on both gifts and inheritances and in both cases, for children, there is a deductible of up to one million euro: it is advisable to inform everyone and do the math well, as a pre-wedding and pre-last wills wealth advice. But above all, we are not obliged to leave an inheritance; you can spend everything. People don’t know it well and believe they have like an obligation to leave money, houses, possessions.
Anyway, all assets and rights that can enrich the donee’s assets are subject to donation, including:
- one or more assets already present in the donor’s estate, whether they are movable property, including registered property, universality of movables, companies or immovable properties;
- real rights of enjoyment such as usufruct, use, habitation, surface right or easement;
- by express prohibition of law, however, future assets cannot be the subject of a donation.
In general terms, donations are divided into direct and indirect donations.
Direct or typical donations are contracts in which, in a spirit of generosity, one party enriches the other, disposing of his right in favour of the latter or assuming an obligation towards the latter. Such donations require, under penalty of nullity, a public deed received by the Notary in the presence of two witnesses, except for donations concerning movable things of modest value. Hence, it is sufficient that the delivery of the thing has taken place. It should be noted that the modest value must not be assessed absolutely. Still, in relation to the economic conditions of the donor, it is understood that real estate donations always require a public deed regardless of the value of the donated property. The donation is a contract and, therefore, requires the express acceptance of the donee for its completion and the expression of the donor’s will. The acceptance can be contained in the deed that includes the donor’s proposal or a subsequent deed that must always have a public form. In the latter case, the donation produces its effects from the moment the authentic deed containing the acceptance has been served on the donor. The purpose of the donation can also be achieved with a transaction other than the typical donation: in this case we speak of an indirect donation which, in any case, requires the presence of the spirit of generosity on the part of the settlor. There must be a direct causal link between the impoverishment of the donor and the enrichment of the beneficiary.
Indirect donations consist of a series of acts that – although they do not comply with the typical requirements of direct donation – produce the same effects, impoverishing the donor and enriching the beneficiary in a spirit of generosity. In any case, certain provisions governing direct donations apply to indirect contributions, including the rules on revocation for ingratitude or the occurrence of children, as well as those relating to the reduction of the reserved share due to injury. By way of example, the following cases constitute indirect donations – only and exclusively if carried out in a spirit of generosity: (a) the waiver of a right of usufruct; (b) the payment of someone else’s debt; (c) debt forgiveness; (d) the renunciation of inheritance pure and simple; (e) the contract in favour of a third party, to have the third party purchase the transferred property or other utilities; (f) the registration of assets in the name of others. In addition to the two categories of donation, a further one is identified, the informal donation, which consists of carrying out a material activity, such as a bank transfer, having the effect of reducing the donor’s assets and enriching the beneficiary’s assets.
Tax framework for donations – The scope of the gift tax includes transfers of assets and rights made by donation or other donations between living persons, apart from those donations made for maintenance and education expenses and those incurred for illness, ordinary donations made for clothing or weddings and donations of modest value. If, therefore, from a civil law point of view, donations are classified as direct and indirect, the tax discipline provides for the taxability, alongside direct donations, of other donations between living persons, defined as acts of disposition not formalized in public deeds, which pursue the same purposes as typical donations. Among the other donations between living persons, as a residual case, there are, therefore, in principle, indirect donations and informal donations. The regulatory framework shows that other donations between living persons are taxable for gift tax purposes only in certain cases and based on well-identified assumptions.
Therefore, if there are no deeds subject to registration, for example, as they are not stipulated in writing, nor set out in a written deed pursuant to the tax, there will not be a relevant case for the purposes of the tax, unless: (i) there is a hypothesis of voluntary registration of the donation; (ii) the donation emerges from declarations made by the interested party in the context of proceedings aimed at the assessment of taxes. In the latter case, the donation will be taxable – at its maximum rate of 8% – to the extent that, alone or together with those disposed of to the same beneficiary, the relative value exceeds the deductibles provided for by law, if applicable. The recent ruling established the taxability of the informal donation consisting in the transfer of financial assets, by way of donation, by bank transfer from the donor’s current account to that of the donee, as it was confessed as part of the voluntary disclosure procedure. From a wealth consulting point of view, it is interesting to examine the possible impact of a donation reform project. It introduces elements of simplification, but it can be improved with regard to the taxation of indirect donations.
Among the changes envisaged, inheritance and gift tax is extended to transfers deriving from trusts; the tax is explicitly excluded for donations of use. The applicable tax exemptions and rates depend on the value of the assets and the marital or family relationship between the settlor and the beneficiary at the time of the transfer. Although the aspect that has been most talked about is related to the payment of the tax, which takes place in self-assessment by the beneficiary at the time of the transfer and upon notification of the same or, in advance and definitively, by the settlor or trustee at the time of the contribution of the assets or the opening of the succession. The reform is going in the right direction as the novelties of the draft decree implementing the tax reform are only rationalizations and simplification of obligations. One of these is the self-assessment of inheritance taxes where, in the current situation, the declaration regime of inheritance taxes is dissociated from the liquidation phase of the taxes due, entrusted precisely to the Revenue Agency.
For the future, the two moments are unified and referred to the taxpayer, leaving the tax administration with the posthumous control of the obligations carried out. The payment of the taxes self-assessed by the taxpayer would take place within 90 days of the submission of the declaration itself. There is room for improvement with regard to the taxation of indirect donations ascertained or confessed and declared in assessment, which are taxed at a rate of 8%. It is expected a clarifying intervention on the crediting of foreign taxes, like the possibility of deducting taxes paid abroad on donated or inherited assets.
Taxation can also be anticipated at the time of its establishment by testamentary means, in this way stabilize the levy that will be based on the current tax rates, with the effect that, if they were to be increased in the future, those who have adhered to this voluntary advance taxation of the trust will not have further disbursements. In fact, the issue of taxation of assets tied up in trusts has been cleared, which is deferred, i.e. the taxation for the purposes of gift taxes of contributions/contributions to trusts takes place at the time of their devolution, retrocession to the beneficiaries. The new text, without modifying these system premises, introduces only one option, namely the possibility of taxing the trust at the time of its establishment without waiting to tax it with the assignments to the beneficiaries.
There is a voluntary discounting of the tax levy on the trust. Consequently, those who adhere to this option will be able to receive allocations, albeit exuberant compared to those on which the current levy has been settled. If, in the future, the price of financial instruments conferred in trust should improve, this latent surplus value will not be taxed at the time of their assignment. Therefore, the advice is to consider the possibility of anticipating the tax levy to protect against future aggravations of it.
Article edited by Giuseppe G. Santorsola
Full Professor
Chair in Asset Management,
Corporate Finance and Corporate & Investment Banking.
Parthenope University of Naples
