The first rectified Finance Act for 2011 dated 29th July 2011 (entry in force 31th July 2011) introduced a new penalizing regime of taxation for foreign Trusts in France, and new reporting obligations for the Trustees.
The Trustees have until 15 June 2013 to make their annual disclosure of the market value of the assets, rights or income capitalised in Trust. This reporting obligation applies to Trusts in existence on 1st January 2013.
1. Trustees disclosure obligation: Annual declaration of the market value at the 1st January 2013 of the Trust’s assets, rights or capitalized income
Scope of the return
Article 1649 AB, alinea 2 of the French Tax Code (“FTC”) has created an obligation for the Trustees to disclose information in respect of the market value of the Trust’s assets, rights or capitalized income on 1st January each year.
This reporting must be made by the Trustees in one of the three situations:
- if the Settlor (or Deemed Settlor) is French tax resident; or
- if a Beneficiary is French tax resident; or
- if one of the Trust’s assets is located in France (except for financial investments).
If case of death of the original Settlor, the Beneficiaries are all considered as Deemed Settlors for the purpose of new legislation.
The reporting must be made by the Trustees on the 15 June (for this tax year 17 June as 15 June is a Saturday). The deadline is postponed to the 31 August (for this tax year 2 September as 31 August is a Saturday) when the Settlor or the Deemed Settlor is a non-French tax resident.
The French Tax Authorities (“FTA”) have issued a specific return “2181 TRUST 2” but the Trustees can make the reporting by a simple letter to the FTA.
Information to be provided in the return
In their Decree dated 14 September 2012, the FTA have detailed the requested information that need to be provided by the Trustees:
- Identity of the Settlor or Deemed Settlor: full name or registered name, address, date and place of birth (and date of death if applicable);
- Identity of the Beneficiary: full name or registered name, address, date of birth (and date of death if applicable);
- Identity of the Trustees: full name or registered name, and address;
- Identity of the Trust: name and address;
- Terms of the Trust: contents of the provisions of the Trust and additional provisions, if any, regarding the Trust’s organization, including information on the revocability nature or not, discretionary nature or not, and the rules regarding the devolution of the assets and the income;
- If at least one of the Settlors, Deemed Settlors, or Beneficiaries is tax resident in France, a detailed inventory of the worldwide Trust assets, rights or capitalized products in the Trust and their market value on the 1st January;
- If none of the Settlors, Deemed Settlors, or Beneficiaries is tax resident in France a detailed inventory of the French situs Trust assets, rights or capitalized products in the Trust and their market value on the 1st January, excepting for the financial assets.
The Trustees do not have to provide information mentioned in 5, if the return required at the creation, amendments or extinction of the Trust (return 2181 TRUST 1 to be filed within one month from the triggering event) has been previously filed.
If the Trustees do not comply with this disclosure information, they are liable for a penalty of the higher of either €10,000 or 5% of the value of the Trust’s assets. The Settlor and Beneficiaries are jointly liable for the payment of this fine. Non-compliance could also trigger the application of the sui generis levy at the actual rate of 1.5%.
2. Sui Generis levy of 1.5% for the Trustees
Under the new legislation, the Settlor, or if he is already deceased, the Deemed Settlor, is subject to wealth tax on the Trust assets.
If the Settlor (or the Deemed Settlor) is resident in France, he is subject to wealth tax on the worldwide Trust’s assets or rights. If the Settlor (or Deemed Settlor) is not French tax resident, he is subject to wealth tax on the French situs Trust’s assets.
Please note that the Trust’s assets will be considered as split equally between the Deemed Settlors, when there is no express distribution of the Trust’s assets in the Trust deed.
In the case where the Settlor (or the Deemed Settlor) has failed to disclose the Trust’s assets in his wealth tax return, the Trustees are liable for the payment of a special levy set at 1.5% (higher rate of wealth tax for 2013-the levy was at the rate of 0.5% for 2012). The Settlor and the Beneficiaries are jointly liable with the Trustees for the payment. The payment deadlines for this specific 1.5% levy are the same as for the annual disclosure obligation (17 June or 2 September for this tax year).
This 1.5% levy will however not be due if:
- The assets have been reported by the Settlor or Deemed Settlor and subject to wealth tax; and
- The above disclosure obligations have been complied with.
For memory, this specific levy is not due in cases of:
- an irrevocable trust established for charitable purposes; or
- Trusts created for managing the pension rights.
This article is for general information only and is not intended to provide legal advice
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