Term Life insurance policy: italian tax regime

Term life insurance (“TLI”) is a type of life insurance policy that has a specified end date, like 20 years from the start date. The death benefit will only be paid out if the insured dies during this time period. This is the amount of money that will be paid to the beneficiary when the insured passes away, and it can be issued in a variety of ways, such as a lump-sum payment or as annuities.
According to the Italian tax regime, the income generated by insurance policies is:

• totally tax exempt in the hands of beneficiaries as long as it is related to the so called "demographic risk";
• as long as it isn't, taxed as financial income for an amount equal to the difference between the premium paid by the policyholder and the compensation paid to the beneficiary.
  In a nutshell, demografic risk represents the risk incurred by the insurance company related to possibility that the insured person dies (or not) or that he/she dies before the expected moment. Such risk exits only in TLI. On the contrary, it totally lacks as for the so called "Financial polices" (such as the so called "index/unit linked policies").
  TLI are therefore totally exempt in the hands of the beneficiary.
  As for TLI, the payment of compensation in the event of death is not subject to inheritance tax either. Such rule should apply also in the case the compensation is paid to a trust.
  The Italian Income tax return contains a form, so called "RW form", in which foreign assets held abroad are supposed to be reported (so called “Tax monitoring” or, in Italian, “monitoraggio fiscale”). The RW form must be filled as for any asset that can potentially generate taxable income in Italy .
  Such obligation is placed on Italian resident individuals and partnership. In principle, the subjects obliged to fill the RW form are:
• the owner of the foreign asset;
• the subject that can de facto act as owner;
• the "beneficial owner", pursuant to anti money laundering legislation ("beneficial owner").
  In principle, in case of failure to disclose the relevant assets located abroad, sanctions range from 3% to 15% of the value of the unreported assets (such sanctions can be doubled as for some so called black list countries).
  In principle, TLI policies are foreign financial assets. As such, they are subject to indication in the RW form.
  In theory the subject who could be held responsible for the Tax monitoring obligations is the policyholder as long as he/she controls the policy and can redeem it. So stated, given the fact that most of the TLI policyholder are not an italian resident, no Tax monitoring obligation should usually arise as for the TLI.
  On the other hand, in principle, the beneficiary should be not held responsible for such obligation. Indeed, it has no control over the policy itself . , nor can redeem it. Indeed, the insurance company, entered into a negotiation with the policyholder only and not with the beneficiary. The policy was established in the interest of the policyholder not of the beneficiary, especially when the latter can be revoked until the death of the policyholder.
  However, in this case, it is crucial to ascertain if the beneficiary of an insurance policy - even if not the legal or de facto owner of the asset - can nevertheless be qualified as Beneficial owner of the policy itself (and as such, subject to Tax Monitoring).
  So far, no clarifications were issued as for the matter at stake.
  However, pursuant to anti money-loundering legislation, the beneficial owner is, in principle, "the natural person or natural persons, other than the client, on behalf of whom the customer establishes an ongoing relationship or carries out an operation". Such definition seems to apply the subject who “controls” the client of policyholder :, more than to the beneficiary. The aforementioned conclusion seems to be confirmed by the Italian Insurance Authority (IVASS) in Regulation 12 February 2019, no. 44. According to such regulation, the "Beneficial owner":of an insurance policy is (simplified translation):
• “i. the natural person or natural persons on behalf of whom the customer establishes an ongoing relationship or carries out an operation”
• ii. in the event that the customer or the person on behalf of whom the customer establishes an ongoing relationship or carries out a transaction are subjects other than a natural person, the person or individuals to whom, in the last resort, the ownership of these subjects or their control”;
• iii. the person or natural persons to whom, in the last resort, the ownership or the relative control of the subject, other than a natural person, is directly or indirectly attributable, who has the right to receive the insurance benefit, on the basis of the designation made by the policyholder or the insured”.
  In a nutshell, as for TLI, the beneficial owner is the person on whose behalf the transaction is conducted. The policy is usually established in the interest of the policyholder not of the beneficiary, especially when the latter can be revoked until the death of the policyholder. The insurance company entered into a negotiation with the policyholder (or one of her/his representative) only and not with the beneficiary. Therefore, in our opinion, the beneficiary of a TLI is not supposed to fill in the RW form (not until the compensation is paid).
  Obviously, the beneficiary must fill the RW form when the compensation is paid . Such conclusion seems to be indirectly confirmed by the ruling 23 July 2019, no. 300.