The French Finance Act 2011 introduced a very strict taxation regime for foreign Trusts having French connections together with potentially wider ranging tax and reporting obligations imposed personally on trustees. The legislation applies both to inter vivos trusts and those set up by a will at death.
The French new rules apply to all Trusts:
- Where any of the Trustee, settlor, deemed settlor, beneficiary or protector is a French tax resident.
- Or where the Trustees hold certain French situs assets, even if the settlor, deemed settlor, protector or beneficiary are not a French tax resident.
In case of the death of the settlor, all the beneficiaries become “deemed settlors” for the purposes of the French legislation.
The Trustees are under an obligation to disclose information in respect of the existence, modification or extinction of the trust, the specifications of the trust and the trust’s assets. The tax residence of the Trustee, settlor, protector and beneficiaries is analyzed on 1st January each year. It is the liability of the trustees to decide if an individual is a beneficiary or not of a trust.
If the Trustees do not comply with this disclosure information, they are liable for a penalty of Euros 20,000 per return. The settlor and beneficiaries (jointly) will be liable for the payment of this fine with the Trustees. However, from experience, if the Trustees of a Trust spontaneously regularize the filing, in practice, the FTA do not apply the €20,000 penalty.
The French Tax Code sets out two separate reporting obligations.
The first return (form 2181 Trust 1) is an event return to disclose the creation, amendments and revocation for any trust (return to be filed within one month from the relevant event). The term “amendment” is not defined and it may include any distributions, even to a non-resident beneficiary. This return needs to be filed within 30 days from the “event”
The second return (form 2181 Trust 2) is an annual obligation to disclose all the details of the Trust and the market value of the trust’s assets (or of the French’s assets only -depending on the links of the Trust with France) on the 1st January. This return needs to be filed before 15 June each year.
