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  • Reporting of Regular Trust Income Distributions
French Tax Bulletin:

Reporting of Regular Trust Income Distributions

26 July 2022

Some flexibility existed up to 2017 when reporting trust distributions of regular non-capitalised interest and dividends made to beneficiaries throughout the tax year.

Instead of having to report these within one month of occurrence as individual separate “events”, these could all be combined in a single event report submitted before 31 January of the following tax year.

An amendment to the French wealth tax legislation effective from 2018, had inadvertently removed this tolerance.

Like us, many have since requested written confirmation from the French tax administration to ascertain whether this practice was still authorised. Indeed, this was a crucial consideration given the €20,000 penalty for omissions.

It has recently come to our attention that the French administration updated their practice manual at the end of March and reinstated the flexible annual reporting for income distributions, as long as these consist of interest and dividends which have not been capitalised prior to their distribution and are taxable in France as investment income. It is specified that the trustee must be in a position to demonstrate that this is the case. This provides an extra insight into the likely treatment of trust distributions which, in some situations, continues to raise issues. Indeed, being able to breakdown trust distributions in terms of regular income, capitalised income and capital can sometimes be challenging. The French system does not have set rules such as, for instance, “matching to income” that apply under UK tax law. In the absence of proper detailed guidance, the current general consensus for distributions to beneficiaries, where the settlor is alive, seems to be that these are likely to be treated as taxable gifts from the settlor. On the other hand, distributions to the settlor or to beneficiaries treated as “deemed settlors”, after the original settlor has passed, are more likely to be treated as taxable income (taxed in France as investment income) unless one is able to prove otherwise.  We have also been made aware that, in practice, the French tax administration tended to consider that income received at trust level which was distributed in that same tax year was taxed as income whilst any income which remained in trust was treated as capitalised and therefore attracted gifts tax consideration upon distribution. Nevertheless, at this stage, it is difficult to know if this practice can be totally relied upon. These ongoing considerations illustrate the importance of detailed records-keeping. 

As part of the manual updates, the administration specifies that the successive purchases and sales of securities held in a portfolio within a trust, do not constitute reportable changes, provided the proceeds remain in cash or are reinvested within the portfolio. On the other hand, reporting is due when the proceeds are partially or fully distributed.  The manual was also updated to include the changes introduced through the February 2020 Ordinance n°2020-115 – see our Autumn 2020 Bulletin and extra details relating to the reporting of investment portfolios and disposals of French stocks and shares.

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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