Last year France passed legislation which is aimed at taxing assets held through trusts where there is a connection with France. Effective as of July 31, 2011, this legislation imposes tax reporting obligations on trustees acting for trusts with French resident beneficiaries, French resident settlors or French situs assets. (See Holland & Knight's Private Wealth Services alert, March 14, 2012, for more about this law.) The French tax authorities have finally published long-awaited guidance (Decree No. 2012-1050 of 14 September 2012) providing important details of the new reporting requirements for trusts with French connections.
Filing Requirements Deadlines
The decree sets out the following deadlines for the two different filing requirements:
1. General disclosure obligation (one-off trustee declarations triggered by certain events)
The trustee must disclose to the French tax authorities the creation, modification or termination of any trusts with French connections (i.e., the settlor or at least one of the beneficiaries is a French resident or if any trust asset is situated in France).
Trusts in existence on July 31, 2011, and any trusts set up, modified or terminated between July 31, 2011, and September 15, 2012, must be disclosed by December 31, 2012.
Trusts set up, modified or terminated after September 15, 2012, must be disclosed within one month of the event.
The decree gives a wide definition of the term "modification of the trust," including the following: any changes to the terms of the operation of the trust, settlor, "deemed settlor," beneficiary, trustee, any death of any of the above parties, any new transfers to the trust, any distribution of rights, products or assets out of the trust, any transfer attribution of asset, rights or products, and more generally any legal or factual modification likely to affect the economy or running of the trust.
2. Specific disclosure obligation under the Wealth Tax regime (the annual trustee declaration)
The trustee must disclose the market value of the trust assets as of January 1 each year together with a detailed inventory of assets, and information regarding the identity of the settlor, the trustees, the beneficiaries, and a description of the terms of the trust byJune 15 of each year. If applicable, the sui generis 0.5 percent tax (trust charge levy) is paid together with the filing of such declaration. For the year 2012, the decree extends this deadline to September 30, 2012.
All the assets must be disclosed if the settlor and/or at least one of the beneficiaries of the trust are French tax resident.
Only French situs assets (except for French financial assets) must be disclosed if the settlor and/or the beneficiaries are not French tax resident.
When determining the French situs assets for purposes of the reporting obligation, the term "financial investments" is the same as the definition used for French wealth tax purposes; it includes deposits held through French financial establishments, French bonds and French equity. However, for wealth tax purposes, interests in real estate companies, shareholdings of more than 10 percent, and direct or indirect interests of more than 50 percent in entities owning real estate rights in France would qualify as French situs assets and as thus should be reported by the trustee — even when the settlor and all the beneficiaries are not French tax residents — as these kinds of investments do not qualify as financial investments.
Failure to meet the reporting requirements incurs a fine of €10,000 or a penalty of 5 percent of the trust assets, whichever is greater. The trustee will be jointly liable with the settlor and beneficiaries for the payment of the fine/penalty