As we near the end of the tenth year since the introduction of the French trust legislation, we explore trust reporting, some of the pitfalls of non-compliance, and consider items to include in any trust year-end reviews.
The French reporting requirements for trusts have evolved since July 2011. Currently, reportable trusts are those with at least one French resident party or those which hold French assets, including, since 2019, financial assets or rights therein and capitalised income. For the sake of clarity, a trust which holds a French asset is reportable even if all the parties are resident outside France.
Unlike with French real estate assets, French financial assets held through a non-French underlying entity or collective investment should not trigger the reporting. However, if the underlying entity holds these assets as a nominee, i.e., on behalf of the trust or where it predominantly holds French financial assets, then the situation may not be as clear-cut, and the reporting may be necessary.
Trusts and/or companies which hold French real property (whether directly or indirectly) must also report by 16 May each year to claim an exemption or face a 3% annual charge.
The annual trust reporting is also necessary to claim exemption from the 1.5% sui generis charge, designed to penalise non-disclosure of trust assets for wealth tax purposes. Where a trust has not complied with the annual reporting requirements, the administration may seek to apply the sui generis charge, even if the relevant trust party’s wealth, including any trust asset, is below the annual taxable limit of €1.3M.
Whilst the €20,000 penalty statutory limit for late or incomplete trust reports is four years, the French tax administration may assess wealth tax or the sui generis charge at 1.5% on relevant trust assets up to ten years in arrears. It is important to remember that wealth tax applied to all types of assets, (except French financial assets in the hands of non-French tax residents), prior to 2018.
Year-end reviews are always advisable to establish whether a particular trust may be removed from the French tax system through any restructuring or an exclusion of French resident parties.
All trust reporting matters are now handled by the Recette Patrimoniale des non-résidents Department. They recently made it clear that relative tolerance demonstrated thus far in respect of any late or incomplete trust reports will not last. They also specified that charitable trusts which meet the strict exemption conditions in respect of the sui generis charge, are sadly not excluded from the reporting obligations.
Given the ever-evolving legislation, interpretations and ongoing grey areas, it is important to monitor French tax exposure in order to minimise any risk. Below is a list of “jobs” which may assist with this process:
Review past reporting and ensure that the reports are as complete as possible. Where it has proven impossible for the trustee to obtain all the required information, consider including a cover letter and/or stating a mention expresse in the text section for future reporting to explain the reasons.
- Review cases which continue to be exposed to the French tax system and consider obtaining updated advice on any French tax trigger events.
- Check the tax residence status of all trust parties to the trust and look for any changes.
- Where possible obtain information on how French tax resident parties have reported their interest in the trust to their French local tax office since this is a potential cross-referencing area.
- Consider the French tax impact of any future plausible events, such as the death of a party, distributions etc, and identify any positive reporting opportunities.
- Schedule regular reviews, for instance, when preparing the annual report.
Should you have any queries please contact Virginie Deflassieux or Catherine Le Pelley.
This publication has been carefully prepared, but it has been written in general terms and should be seen as containing broad statements only. It cannot be relied upon to cover specific situations without obtaining professional advice.
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