A report on a session at the IBA Annual Conference 2026 in Copenhagen, held on 6 October 2026

Session Co-Chairs
Jochen Kotzenberg, Flick Gocke Schaumburg, Bonn
Silvia Martina, BSVA – Studio Legale Associato, Milan

Panellists
Marco Cerrato, Maisto e Associati, Milan
Sangna Chauhan, Charles Russell Speechlys, London
Joanna Jiang, East & Concord Partners, Shanghai
Niklas Schmidt, WOLF THEISS Rechtsanwälte GmbH & Co, Vienna
Elizabeth J Stevens, Caplin & Drysdale, Chartered, Washington, DC

Reporter
Aakash Mishra, Shreya Rao & Associates, Bangalore

One structure, several tax results

Entity classification may sound technical but the consequences are immediate for internationally mobile families. A structure may continue to operate under the same deed or constitutional documents after a relocation, while the tax analysis changes entirely. One country may tax the structure as a separate person while another may look through it to the settlor, owner or beneficiary. Tax may (depending on the jurisdiction) arise as income is earned, on distribution, on migration or on termination. A mismatch can leave the same profit taxed more than once, with no straightforward credit because the countries disagree either about the taxpayer or the timing.

Jochen Kotzenberg described uncertainty as the thread running through the discussion. The panel, consequently, worked in two rounds – the first compared the tests used in five jurisdictions, and the second turned to the current developments and practical ways to manage the risk.

England: characterise first, then apply the tax rule

Sangna Chauhan began by noting that the term ‘entity’ was being used broadly to include legal relationships such as trusts and partnerships. In England, the exercise has two connected stages. Advisers first examine the foreign law and the structure’s governing documents to identify its legal characteristics. They then ask which English concept those characteristics most closely resemble and apply each relevant UK taxing provision.

The main questions concern, among other things, separate legal personality, ownership of the underlying assets, entitlement to profits, responsibility for losses and liabilities and the way the business is carried on. A foundation, for instance, has no direct English equivalent and may resemble a company, a trust, a nominee arrangement or a contractual relationship. The foreign label and foreign tax treatment may not decide the UK result. The analysis may also differ between taxes – a structure can be a settlement for inheritance tax without receiving a similar treatment for income tax.

The result may be full transparency, limited transparency for income tax or opacity. The result that follows identifies the taxpayer and the point at which tax arises. A UK resident opaque entity may face tax on its own income, while its owners may be taxed on distributions. Relocating out of the UK may also bring an exit charge.

His Majesty’s Revenue and Customs (HMRC) publishes a list indicating its view of several foreign entity types, though the list is guidance rather than law and may be based on standard or historic documents. The constitution of the entity in question still matters. Chauhan used Delaware limited liability companies (LLCs) to show the ambiguity. HMRC generally regards them as opaque, while the UK Supreme Court held in Anson v HMRC^[1] that the LLC before it was transparent because its members became entitled to profits as they arose.

Austria: compare the foreign form with an Austrian type

Niklas Schmidt explained Austria’s ‘type comparison’ approach. The classification is autonomous – the foreign tax result (including a US check-the-box election) is set aside. The foreign entity’s legal features are compared with an Austrian corporation or partnership. Separate legal personality, fixed capital, limited liability, participation in capital, management by separate bodies, transferability, registration and the nature of contributions all form part of the overall picture. No single characteristic was the deciding factor.

A foreign trust presents a different problem because Austrian law has no domestic trust form and the Hague Trust Convention does not apply. The practical question then becomes who controls the assets? A revocable arrangement, binding instructions, a mandate agreement, reserved powers or a settlor serving as trustee can lead to transparency, with income remaining attributable to the settlor or beneficiary. An irrevocable structure with an independent trustee and genuine discretionary powers is more likely to be treated as a separate taxpayer comparable to an Austrian private foundation.

The tax difference is substantial. Funding an opaque structure can attract foundation entry tax, generally 3.5 per cent while distributions of investment income to an Austrian resident beneficiary may be taxed at 27.5 per cent. Schmidt also stressed the need for an Austrian-standard evidence account to support tax-free distributions of substance. For clients moving to Austria, the deed, letter of wishes and protector powers should be reviewed before arrival. A binding ruling may help, and tax insurance can offer a faster way to cover a defined classification risk.

United States: a regulatory system with elections and exceptions

Elizabeth J Stevens set out the US federal income tax approach. US classification is largely independent of both non-tax legal status and the treatment adopted abroad. Since 1996, the check-the-box regulations have allowed many business entities to elect their classification. Per se corporations cannot elect transparency. Other entities fall under default rules that consider place of formation, number of members and limited liability, while an eligible entity may elect corporate, partnership or disregarded status.

Trusts follow a separate inquiry – an arrangement treated as a trust under local law may instead be a business entity for US tax purposes. Broadly, a trust lacks either associates in a joint profit-seeking enterprise or a business objective. A grantor trust is transparent for income tax although a transfer to it may still be considered a gift and remove the assets from the grantor’s estate for US transfer tax purposes.

Regulation has not removed every grey area. For instance, a contractual joint venture may be a partnership for US tax even though foreign or non-tax law may not see it as an entity. This may expose an overseas participant to US business income. Series LLCs and compartmentalised investment vehicles raise the opposite question – one legal entity may contain several economically separate pools, and the tax law determines whether each pool can make its own classification election.

Classification also controls extensive information reporting. Forms for foreign companies, partnerships, trusts and assets may be required, including forms 5471, 8858, 8865, 3520, 3520-A and 8938, together with foreign bank account reporting where relevant. A substantially incomplete filing can keep the assessment period open for the whole return.

Italy: entitlement, control and economic autonomy

Marco Cerrato said Italy has no general check-the-box regime. Transparency arises in specified settings, including Italian partnerships, controlled foreign company rules and fixed interest trusts. A foreign partnership is generally treated differently from an Italian partnership – income is normally recognised when distributed rather than attributed as it arises. For a fixed interest trust, only the income the beneficiary is currently entitled to receive is taxed directly to them. The trust itself is taxed on the remaining amount.

Before deciding between transparency and opacity, advisers must establish that the trust will be recognised. Italy recognises foreign law trusts through the Hague Trust Convention, but tax and civil courts may disregard an arrangement where control has not genuinely passed. The revenue authorities also use an anti-abuse look-through rule where another person controls income formally received by the trust. Powers to revoke or terminate the trust, modify distributions or influence the trustee’s decisions, including through a protector, are closely examined. Once the trust is recognised for Italian tax purposes, a genuinely discretionary trust is opaque, while income to which a beneficiary has a fixed entitlement is attributed to that beneficiary irrespective of whether it has been distributed.

For an Italian resident beneficiary of a low tax foreign opaque trust or foundation, a distribution may be taxed at progressive rates reaching 45 per cent. Capital can be tax-free where the evidence shows it was settled by a non-resident, making careful records separating capital from income essential. Cerrato also described the use of rulings for people moving to Italy under the flat-tax regime. The ruling process can establish whether an existing trust will be disregarded, transparent or opaque before a planned liquidity event or distribution.

China: simple entity categories, new trust rules

Joanna Jiang explained that China’s basic categories are comparatively clear. A company is opaque and generally pays corporate income tax at 25 per cent. A partnership is transparent, with tax borne by its partners, while a sole proprietorship is taxed to its individual owner at progressive rates. Transparency does not always produce a lower cost – a corporate partner may lose an inter-corporate dividend exemption and may be unable to use partnership losses against its own income.

Residence remains important – an overseas subsidiary incorporated outside China can become Chinese resident where effective management takes place in China, exposing worldwide income to Chinese corporate tax. For inbound activity, a representative office has limited permitted functions and can create a permanent establishment.

The largest recent change concerned offshore trusts. On 24 July 2026, the Ministry of Finance and State Taxation Administration issued Announcement Number 21 of 2026, alongside Announcement Number 15. The rules apply to foreign trusts and trust-like arrangements and, for a PRC resident settlor, can tax a contribution at 20 per cent and attribute annual trust income and gains to the settlor without a distribution. Residence change, termination and death may also trigger tax consequences. The transitional filing period for historic liabilities created immediate valuation, liquidity and foreign exchange problems. Jiang advised families to calculate the cost of keeping or ending the structure, then revisit the trust’s purpose, family residence plans, business location and wider holding arrangements before acting.

Planning before the border is crossed

Classification must be considered separately in each country connected with the structure. The result may also differ according to the tax involved and the relevant event, such as a contribution, distribution, change of residence or termination. The analysis requires a review of the governing law and documents, the rights and powers of the parties and how the structure operates in practice.

The UK consultation published on 10 June 2026 provided a current example. It proposed transparent UK treatment for interests held by UK resident individuals in certain non-UK reverse hybrids. This would allow double tax relief and prevent further income tax on later distributions. Chauhan supported the objective but noted that the scope of the proposal remained unclear. She also preferred an elective approach to automatic treatment.

A structure may be classified differently when it becomes connected with another country. Its name is not decisive. Reviewing the structure before a change of residence gives the client time to amend its documents, adjust its governance or seek a ruling where appropriate.

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^[1] Anson v HMRC [2015] UKSC 44.