In a significant decision for international investors and non-profit organizations, the Italian Supreme Court (Corte di Cassazione) has confirmed that a foreign charitable trust may be entitled to the same favorable tax treatment granted to comparable Italian non-commercial entities.
With Judgment No. 16281 of 26 May 2026, the Court held that denying a foreign charitable trust the tax benefits available to Italian foundations may violate fundamental European Union principles, including the free movement of capital and the prohibition of discrimination based on residence.
The Case
The dispute concerned a UK charitable trust that had received dividends from Italian companies between 2006 and 2011. The trust sought a refund of withholding taxes, arguing that it should benefit from the same tax treatment available at the time to Italian non-commercial entities and foundations.
The Italian tax authorities rejected the claim, and the lower courts agreed, finding that the foreign charitable trust could not be treated as equivalent to an Italian foundation. According to the appellate court, the trust’s participation in Italian companies made its activity comparable to that of a commercial enterprise.
The Supreme Court disagreed.
Substance Over Legal Form
A central aspect of the decision is the Court’s emphasis on the actual purpose and function of the entity rather than its legal structure.
The Court observed that the trust had produced official documentation demonstrating its status as a charitable trust established for public-interest and philanthropic purposes. Merely holding shares in Italian companies does not mean that the trust itself carries on a commercial business.
According to the Supreme Court, comparing entities from different jurisdictions solely on the basis of their legal form would lead to an unreasonable result. Since every legal system adopts its own organizational models, requiring identical structures would make it virtually impossible for foreign entities to qualify for equivalent treatment.
Instead, the assessment must focus on the objectives pursued by the entity and the nature of its activities.
EU Principles Prevail
The judgment relies heavily on European Union law.
The Court reaffirmed that entities established in one Member State must not be subjected to less favorable treatment when investing in another Member State if they are in a comparable situation. Restrictions that discourage cross-border investment may violate the principles of free movement of capital and freedom of establishment.
Importantly, the Court clarified that the tax treatment granted to the trust in its country of residence is largely irrelevant for determining whether Italy must provide equivalent treatment. The relevant question is whether the foreign entity performs functions comparable to those of an Italian non-commercial organization.
Foreign Charitable Trusts and Italian Foundations
The Supreme Court expressly recognized that, from a functional perspective, a charitable trust may be comparable to an Italian foundation.
Both structures are designed to pursue public-benefit or charitable purposes through assets dedicated to achieving those objectives. The Court noted that equivalence should be assessed by reference to the entity’s function and purpose, not by its organizational framework or internal governance rules.
This reasoning may have broader implications for foreign non-profit entities investing in Italy, particularly where domestic tax benefits are limited to Italian organizations.
Why the Decision Matters
The judgment represents an important development for international estate planning, philanthropic structures, and foreign non-profit organizations holding investments in Italy.
It confirms that foreign charitable entities cannot automatically be excluded from favorable tax regimes simply because they are organized under a legal framework unfamiliar to Italian law. Where a foreign trust can demonstrate that it pursues objectives equivalent to those of an Italian non-commercial entity, equal treatment may be required under EU law.
The decision also reinforces a broader principle that has emerged in European tax jurisprudence: cross-border structures should be evaluated according to their economic and functional reality rather than their formal legal classification.
As international families, charitable organizations, and trustees increasingly hold Italian assets, this judgment provides valuable guidance on the treatment of foreign trusts within the Italian tax system.