DOUBLE TAXATION TREATY BETWEEN UNITED STATES & ITALY

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The US and Italy concluded a bilateral estate tax treaty in 1951. It applies to US Federal estate tax and Irish inheritance tax and to other taxes of a substantially similar character imposed subsequently by either Ireland or the US.

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Key Points

• The US-Italian Double Taxation Agreement creates primary and subsidiary taxing rights  Generally, property is primarily taxable where property located or rights exercised.

• The State imposing a tax in the case of a decedent who at the time of death was a national or citizen of the other State allows an exemption which would be allowable under its law if the decedent has been domiciled in that State. The exemption is restricted to the amount of the value of the US property as a percentage of the worldwide estate value.

• The State imposing a tax where decedent at the time of death was a national or domiciliary of that State allows a credit against its tax for the tax imposed by the other State with respect to property situated in that other State.

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Classification of Assets                                              Situs

Real immovable property                                          Where located

Tangible movable property,                                     Where located at time of death

​Debts                                                                                   Where debtor resides 

Share or stock in a corporation                              Where  corporation was created/organized    Ships and Aircraft                                                         Where registered 

Goodwill of business                                                    Where trade/business/profession carried on

Patents, trademarks and designs                         Where they are registered or used

Copyright, franchises, and rights to works

and rights or licences to use copyrighted

material, patents, trademarks and designs    Where the rights are exercisable

​All other property                                                         Where decedent domiciled at time of death

                                                                                                            

Example 15

Silvio, at the time of death, was a national and domiciliary of Italy.  His date comprised the following assets:

• Stock in US corporation valued at $15,000,000

• Stock in Italian corporation valued at $2,000,000

• Cessna aircraft bought in the US and registered in Italy, valued at $1,000,000.

• Copyright used in business in US, valued at $2,000,00.

 

Silvio left his estate to his secretary (to whom he was not related).

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Assets in the Estate:

US Assets $17,000,000

Italian Assets $3,000,000

Entire Assets $20,000,000

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Tax Rates and Exemptions for Year 2022:

US Exclusion Amount:                   $12,060,000 

Estate tax on first 1m                     $345,800

Estate tax on balance                    40%

Italian Exclusion Amount             Nil (unrelated beneficiary)

Italian Estate Tax                             8%( unrelated beneficiary)

US basis of taxation                       Citizens and domiciliaries - worldwide assets

                                                                  Non-residents and non-citizens - situs assets

Italian basis of taxation                Residents - worldwide assets

                                                                  Non-residents- situs assets

Assume $1 = €1

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Calculation of US Tax Liability:

                                                                                                                        US$

Stock in US corporation                                                                15,000,000

Copyright                                                                                                2,000,000

Total                                                                                                         17,000,000

Tax on first $1,000,000                                  345,800                            

 Tax on balance @ 40%                               6,400,000

Tax Liability                                                       6,745,800

Less Unified Credit                                         4,581,330*

Net Tax Liability                                                                                   2,164,470

Net Value of Taxable Estate                                                         14,835,530                       

* 5,389,800 x 17,000,000   =4,581,330
            20,000,000
 

Tax Liability: $2,645,400

 

Calculation of Italian Tax Liability:

                                                                                                                               €

Stock in US corporation                                                                15,000,000

Copyright                                                                                                2,000,000

Stock in Italian Corporation                                                           2,000,000

Cessna Aircraft                                                                                     1,000,000

                                                                                                                   20,000,000

Tax @ 8%                               1,600,000

Less: US tax liability         1,360,000*

Net Tax Liability                                                                                      240,000

Net Value of Estate                                                                          19,760,000

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Net Tax Liability: €240,000

Net Value of Estate: $20,000,000 – ($2,164,470 + $240,000) = $17,595,530 (€17,595,530)

 

*Lesser of 2,164,470 or 1,360,000

 

US tax attributable to estate: 2,164,470

 

Italian tax attributable to US situs assets:

1,600,000 x 17,000,000  = 1,360,000

              20,000,000

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