Family Pacts: Clarifications on Compensatory Allocations and Taxation

The Italian Tax Agency recently published Resolution No. 12 of February 14, 2025, providing crucial clarifications on the taxation of so-called "compensatory allocations" in the context of family pacts. These are the amounts that the assignee of a business or corporate shares must pay to other non-assignee heirs.

What Does the Family Pact Provide For?

The family pact, regulated by Articles 768-bis and following of the Italian Civil Code, is a contract that allows the transfer of a business or company shares from an entrepreneur to their descendants. This tool ensures business continuity, avoiding the fragmentation typical of inheritance successions.

To protect the rights of other legitimate heirs, the law requires that the business assignee must financially compensate the other heirs with an amount corresponding to their reserved share, unless they waive it.

Taxation of Compensatory Allocations

Resolution No. 12/2025 confirms that compensatory allocations made by the assignee to non-assignee heirs fall under gift tax. According to recent rulings of the Italian Supreme Court, these allocations are considered, for tax purposes, an indirect donation made by the original entrepreneur (the grantor) in favor of the other heirs.

As a result, gift tax is applied based on the family relationship between the grantor and the non-assignee heirs, not between the assignee and the non-assignee heirs.

Exemptions and Obligations

The resolution reiterates that the gift tax exemption provided by Article 3, paragraph 4-ter, of Legislative Decree 346/1990 applies only to the transfer of the business or company shares from the grantor to the designated heir. It is not extended to compensatory allowances, which remain subject to donation tax, except for ordinary deductibles.

To benefit from the exemption, the assignee must continue the business activity or maintain control of the company shares for at least five years after the transfer.

Implications for Family Businesses

This clarification by the Revenue Agency is highly significant for family businesses planning generational succession through the family pact. A correct understanding of tax regulations can help avoid disputes and enable more efficient succession planning, considering the taxes due and applicable exemptions.