Trust Taxation

The Hague Convention, dated 1 July 1985, recognizes and defines the figure of trusts:

“For the purposes of this Convention, the term “trust” refers to legal relationships created – by act inter vivos or mortis causa – by a person, the constituent, through the placement of property under the control of a trustee in the interest of a beneficiary or for a particular purpose.

Trust characteristics

The trust has the following characteristics:

  1. The assets of the trust constitute a separate fund and do not form part of the trustee’s assets;
  2. Title to the trust’s property is established in the name of the trustee or another person on behalf of the trustee;
  3. The trustee has the power and obligation, for which he must render accounts, to administer, manage or dispose of the assets according to the conditions of the trust and the particular obligations imposed on him by law.

Trust taxation in Spain

In fact that it is defined in the Hague Convention ensures that it is an internationally recognized instrument. However, Spain has not ratified this agreement at the present date, so this figure is not recognized in our Spanish legal system, which makes it difficult to treat it for tax purposes. The applicable tax treatment according to the criteria of the Spanish Tax Administration is included in several binding consultations of the General Directorate of Taxes.

To this end, we must act as if it did not exist for tax purposes, imposing a regime of fiscal transparency between the figures of the settlor, trustee and beneficiaries which determines the taxation according to the characteristics and conditions of the trust.

Trusts can have different characteristics, among which the irrevocable and discretionary character stand out.
A trust is irrevocable when it cannot be modified or revoked.

In the case of the discretionary trust, the trustee is empowered to dispose of the assets in favour of the beneficiaries.

To determine the taxation in Spain of the trust, we must take into account whether it is irrevocable or discretionary, and the fact that the figure of the trustee and the beneficiary may coincide. These characteristics will determine the taxation in the Personal Tax and the Inheritance and Donation Tax, as well as the time of accrual of each tax.

It should be remembered that the assets that form the trusts, as long as they exceed the established values, must be reported in form 720.

In our firm, we can help you with the taxation of trusts in their constitution and at the time of distribution of income, as well as in their consolidation. Please contact our tax advisors in Barcelona by phone or email.

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