Report on a session at the 25th Annual US and Europe Tax Practice Trends Conference held in Amsterdam on 9 April 2025

Session Co-chairs

Thierry Boitelle, Boitelle Tax Sàrl, Geneva
Jenny L Longman, Patterson Belknap Webb & Tyler, New York

Panellists

Alexis Hille, Farrer & Co, London
Gerd Kostrzewa, Heuking, Düsseldorf
Luigi M Macioce, Boies Schiller Flexner, Milan
Lucy K Park, Perkins Coie, Chicago
Frédéric Roux, CMS Francis Lefebvre Avocats, Paris
Marnix Veldhuijzen, Dentons, Amsterdam

Reporter

Stefan Stellato, Hannes Snellman, Helsinki

Introduction

The panel discussed foreign grantor trusts in a cross-border context, focusing specifically on cases where United States citizen settlors or beneficiaries of a US grantor trust relocate to Europe.

Panel discussion

Co-chair Thierry Boitelle started by presenting the speakers. Co-Chair Jenny L Longman presented the topic and case study. She then noted that grantor trusts often serve as a fundamental tax planning tool for US residents.

Lucy K Park described basic US trust concepts from a US perspective. A grantor trust is a trust where the grantor is deemed to own the trust’s assets for US federal income tax purposes. Park further explained that revocable trusts are typically used to avoid probate court proceedings after the grantor’s death and that irrevocable trusts can provide US tax benefits by keeping the assets outside the grantor’s taxable estate.

Alexis Hille explained that the United Kingdom significantly broadened its tax treatment of international trust structures as of 6 April 2025. Income is now attributed to the settlor as it arises to the trust if, for example, the settlor, settlor’s spouse/civil partner or settlor’s minor children may benefit from the trust. In regard to capital gains, attribution applies even more broadly. Hille stated that temporary tax exemptions may be available to new UK residents and that treaties may also provide protection against double taxation.

Gerd Kostrzewa explained that Germany is not a classic jurisdiction in terms of trusts, but that the German tax authorities have learnt a lot about trusts. Germany generally treats trusts as opaque, and taxes trust distributions similarly to corporate dividends at a rate of 26.375 per cent. Kostrzewa warned that Germany can tax undistributed trust income if the foreign trust is not correctly structured from a German perspective. In such cases, actual trust distributions should not be taxed again.

Luigi M Macioce explained that the taxation of trusts has become more topical in Italy following the arrival of many high-net-worth individuals seeking to benefit from the Italian lump-sum regime. He explained that Italy generally considers US grantor trusts as transparent entities. Macioce discussed the potential strategies for mitigating Italian tax exposure through the use of tax treaties, foreign tax credits and special tax regimes.

Frédéric Roux explained that France treats foreign trusts as being tax opaque. As the US treats grantor trusts as transparent, there is a notable risk of double taxation. France generally taxes trust distributions at tax rates of up to 34 per cent, but if the taxpayer demonstrates that the trust distribution constitutes a distribution of capital, then gift or inheritance tax could apply instead. However, Roux explained that France applies a look-through approach for wealth taxes, meaning the settlor pays wealth tax on the trust’s French real estate during the settlor’s lifetime.

Marnix Veldhuijzen explained that the Netherlands treats trusts as transparent. Dutch taxation attributes the trust’s assets to the settlor or, upon the settlor’s death, to any legal heirs. This rule may lead a legal heir to be deemed as the owner of trust assets, even if the heir has been disinherited. However, in practice, in such a situation, the heir would likely approach the Dutch tax authorities and have to prove that they are not an actual beneficiary.

Longman summarised, on a general level, that if both jurisdictions treat the settlor as the recipient of the income, tax credits should generally mitigate any double taxation. However, if there is a mismatch about who is taxed on the income, the risk of double taxation is higher.

The panel then moved onto the second part of the discussion in which the speakers briefly described the gift and inheritance tax rules in their respective jurisdictions.

Hille explained that UK inheritance tax rules also changed dramatically as of 6 April 2025. After the settlor has been resident in the UK for ten years, a foreign trust will be captured by UK inheritance taxation and subject to so-called anniversary and exit inheritance tax charges. If only the beneficiary migrates to the UK, there are higher chances of keeping the trust outside the UK inheritance tax net.

Kostrzewa explained that German gift and inheritance tax is due if either party (eg, deceased or heir) is resident in Germany. He warned that any place of residence in Germany, even without the person spending any time in Germany, triggers residency for gift and inheritance tax purposes.

Roux explained that French gift and inheritance tax applies if at least one connecting factor, out of a total of three, is applicable. Where French gift or inheritance tax is triggered only with respect to part of the beneficiaries, it is important to avoid French tax on all of the trust assets by clearly delineating what portion each beneficiary is entitled to or by establishing separate trusts for each beneficiary.

Macioce explained that Italy has an attractive inheritance tax regime, with the highest rate being eight per cent for non-relatives. This, together with the estate tax convention in place between the US and Italy, may enable attractive outcomes in this regard.

Veldhuijzen explained that Dutch gift and inheritance tax is triggered upon a change in attribution of the trust’s income or distribution in regard to the trust.

Conclusion and final remarks

The panel emphasised that trust classification and tax treatment vary drastically from one jurisdiction to another. To avoid tax pitfalls, thorough collaboration is needed between counsel in the relevant jurisdictions.