03 septembre 2012

French trust decree n° 2012-1050 by Peter Harris


“French trust decree n° 2012-1050.


Preliminary thoughts, prior to any as yet unpublished administrative indications:


The three new articles, articles 344 G sexties septies and octies in Annexe III speak to assets, rights and products, referring to article 1649AB and 990J but omit to mention the liabilities that should also be deductible to arrive at net worth by reference to article 885G ter. It looks as if the French administration could and I stress could be attempting to tax trustees on an asset basis alone using the wording in articles 1649AB and 990J, rather than referring back to the main tax principles to tax on the net. That is entirely discriminatory, and probably unconstitutional as taxpayers are being treated differently in relation to the same fundamental tax. 

I leave that issue to my French colleagues.


The preparation of the inventory involved therefore needs some further administrative comment, but, as the Wealth tax is a tax on net wealth, and the 990J prélèvement is a method of its collection, the inventory should in principle be of assets and liabilities and give a net figure. However the wording of the two articles 1649AB and 990J seem to have been deliberately drafted to exclude this.


Were the “net basis” to be acceptable, and it is by no means certain that it would be, trust accounting methods should be used, not the corporate style balance sheets that the service des entreprises étrangères will doubtless be anticipating. If a trustee were to file a corporate style balance sheet they would risk  admitting fiscal separate personality, and risk being assimilated to a commercial trading entity, which is entirely inadvisable: even an SCI is not required to file a balance sheet under the various codes, unless engaged in a  commercial or industrial activity or assimilated. However in this case it would be advisable to revert to the notion of the trustee's separate estate for each trust fund,  or offshore equivalents, and declare accordingly under the law governing the trust.  


The declaration is on plain paper, so if attempting to declare "net" with prior advice from a competent lawyer, it would be best to do so on a full disclosure basis, totalling assets and liabilities  with a "mention expresse" at the end stating the reasons for including the liabilities and the net figure, in the pious, or impious hope of avoiding penalties.


Some are assuming that the September 30th declaration needs to be filed irrespective of whether the French taxpayer has included the assets in their ISF returns, on the basis of the last paragraph of Art. 344 G septies. That last paragraph can be read as technically addressing another issue, but again, there has not been any administrative commentary requiring two declarations of the same thing. Subject to that caveat, I would suggest that where it is the constituant or a fixed interest beneficiary who has made the ISF declaration earlier in the year, the trustees' declaration should be superfluous, in law, under article 990J III 2 a) as the prélèvement is not due,  but that may not be as clear in the case of a discretionary entitlement.  However there is no doubt that the administration will be looking for as much information as it can to cross check, and may well enforce the position that the declaration under 1649AB CGI and article 344 G septies annexe III  is due notwithstanding any declaration by the taxpayer concerned under article 855G.


Note that the Centre at Noisy Le Grand is well known for issuing penalties for late payment even when this is received in time, so it is best to use a euro cheque with the trustees and trusts name on the back rather than a bank transfer which generally ends up having a Banque de France deduction "in transit" rendering it unreconcilable without further reference or ado.


The decree is still peppered with incoherence between the concept of the trust as it is understood elsewhere - it includes foundations and anstalts -  and the  eminently prejudicial assimilations to corporates that the French are imputing to it. The Sce d’imposition des enterprises étrangères is the service that has been charged with treating trusts as entities for the 3% annual tax on immovable property holding entities, and has developed its own understanding of what a beneficiary may be. However the advantage with the 3% annual tax is that the respective attributions between Trustees settlors and beneficiaries can be decided independently - effectively who takes responsibility for the 3% annual tax - which is not the case here.


The English advisor could well be pardoned for seeing a form of tit for tat basis in response to HMRC’s equally piratical treatment of a dismemberment at law as a settlement. It is also clear that this is a prelude to the French version of FATCA declarations to be required of accounts at foreign financial institutions


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