Rotterdam’s historic inner harbour at first light, the old port heritage framed by the modern skyline. A city built, for centuries, on trade and finance.

A trust raises two questions, and they are not the same. The first is legal: will a foreign trust be recognised as a separate fund, beyond the reach of the trustee’s creditors? The second is fiscal: who is taxed once the trust stands between a person and an asset? The common law answered both through equity. The continent answered them in different ways, and the instrument usually credited with helping, the Hague Trust Convention, settles only the first.

A note from Rotterdam

I spent part of last week in Rotterdam, one of the oldest trading ports in modern Europe and a city built on commerce and finance. It has always made its living by welcoming foreign capital and foreign legal forms while keeping a firm hand on what the State is owed. That balance, openness with revenue discipline, is the temperament a trust asks of any jurisdiction, and it is why the Netherlands is the place to begin.

Two questions, not one

As a tax problem, it forces the question of who is taxed, on what, and when, once a separate fund sits between a person and assets. A mature system answers that by neutrality, the structure neither creating nor destroying a charge the wealth would otherwise bear.

The two planes are independent. A state can recognise a trust’s legal effects yet still tax through it, or withhold recognition yet tax it all the same. The continental error is to collapse the two, letting a fiscal suspicion decide the legal question.

The common law answer: equity

In the common law the answer came from equity. The trust grew out of the medieval use and was enforced by the Court of Chancery, which divided ownership, legal title to the trustee and a separate equitable interest to the beneficiary, proprietary enough to bind everyone but the good-faith purchaser for value without notice. The legal solution flows from that division, and the beneficiary’s interest survives the trustee’s insolvency and death.

English tax law then treats the settlement as a taxpayer in its own right, with trustees taxed as a distinct body and the relevant property regime imposing entry, ten-yearly and exit charges. None of this transfers to the continent, which has neither equity nor divided ownership, since Roman-law ownership is unitary and leaves no room for a beneficiary’s proprietary interest. That is why the trust has always sat awkwardly in civil law.

What the Convention does, and does not, do

The Hague Trust Convention was only a partial response, and its limits are the point. It governs applicable law and recognition, not substantive trust law and not tax. A qualifying foreign trust must be recognised as a trust, which implies at least that its assets form a separate fund outside the trustee’s estate, and a civil-law forum can give that effect without importing equitable ownership.

But it goes no further. Article 15 preserves the forum’s mandatory rules, including forced heirship, and Article 19 provides that nothing in the Convention prejudices the powers of States in fiscal matters. Tax is excluded by design. Ratifying therefore answers the legal question and leaves the fiscal question wholly to the state. Recognition never makes a jurisdiction trust-friendly on tax. That is always a separate, domestic choice.

The Dutch example

The Netherlands shows what follows once the two questions are kept apart.

On the fiscal side, which the Convention left open, the Netherlands made a separate domestic choice. Since 2010 the afgezonderd particulier vermogen regime, in article 2.14a of the Wet inkomstenbelasting 2001 and the Successiewet 1956, attributes the trust’s assets and income to the contributor, the inbrenger, and after death to the heirs. Recognition secures the legal solution, attribution answers the tax problem, and neither dictates the other.

Three more continental answers

Italy comes closest, for the same reason. It was among the first to ratify the Convention, by Law No 364 of 1989 in force from 1992, and it recognises foreign-law trusts, including the trust interno whose elements are wholly Italian but whose governing law is foreign.

France took the opposite road, and should not be mistaken for an open trust jurisdiction. It signed the Convention but never ratified it, so recognition of a foreign trust is itself unsettled. Instead it built a domestic analogue, the fiducie, at articles 2011 to 2030 of the Code civil. The fiducie can separate assets for management or security, but it does not import equity and, under article 2013, cannot proceed from an intention libérale, so it is closed to succession planning.

On tax, France fits foreign trusts into its own categories and a dedicated reporting regime. A 2025 bill now proposes to admit the fiducie-libéralité at last.

Spain, as I have discussed before in my article Anglo-Saxon trusts in Spain: the problem of selective transparency is the least settled, and the failing is uncertainty, not hostility. It never ratified the Convention, so recognition rests on a structural gap in private international law, and a Spanish forum may treat a trust as alien and resolve it by domestic categories that do not fit.

On tax, the administration applies a recurring look-through, attributing assets or income where that produces the charge it considers due, for instance within the Impuesto Temporal de Solidaridad de las Grandes Fortunas. With no recognition framework alongside, the settlor gets uncertain protection and assertive transparency at once. The fault is not taxing through the trust, which mature systems do, but collapsing the legal and fiscal questions into one sceptical reflex.

At a glance

What this means in practice

For a cross-border family this is practical, not theoretical. The same trust can be secure in one forum and unstable in the next, so each jurisdiction must be mapped on two axes, whether it recognises the trust as a separate estate, and how it attributes income, gains, wealth and succession once the trust is in view. In France the question is often whether a fiducie fits better than common-law language; in Italy, whether the trust is well enough governed for recognition to hold; in Spain, how to anticipate the look-through. This is the work of reading both legal traditions at once.

A closing thought

The common law solved the trust’s two questions through equity, which the continent cannot copy by statute. The Convention answers only the first, and Article 19 makes the limit explicit. What a civil-law state can still do is choose to recognise the trust and to tax it by clear rule. The Netherlands has; Italy is close; France answered the tax question while withholding the legal one; Spain left both to improvisation. The maturity of a system shows in whether it can tell the two apart. Which, in your own planning, have you assumed was settled when it was not?

This article reflects a personal opinion and does not constitute legal advice.

#privateclient #trusts #crossbordertax #netherlands #civillaw