ILAG members should note a significant development in French trust tax law.

The new Loi de Finances Rectificative pour 2011 contains measures that oblige trusts and their trustees to report on the trust‟s French assets, their French beneficiaries, and/or French settlors.

Like FATCA, the new law seeks to involve trusts which have French settlors and/or beneficiaries, and/or which contain French assets, in seeing that any tax monies owed are collected and has reporting requirements, even if all the parties to the trust reside outside of France, if the trust holds any form of French asset, such as loans, property, stocks and shares.

The new rules were approved by the French Parliament in July 2011 as part of an internal domestic Bill, and are just beginning to reach the awareness of those outside of France, who are involved with contracts which may fall foul of this law.

It is not thought that these rules will apply to pension firms. The requirements fall largely on trustees, and will therefore be of interest to UK firms clients, and UK firms who operate trustee companies.

The key requirements include

• a reporting obligation on trustees where there are French resident settlors or beneficiaries, or in respect of French assets held by non-French residents through a trust with a penalty of €10,000 or 5% of the worldwide trust assets, whichever is the greatest.
• the creation of a database for French tax authorities of who is holding what.
• a special tax of 0.5% payable by the trustees, but for which settlers and beneficiaries are jointly liable unless The trustees would be responsible for the filing and payment of this 0.5% specific tax. Settlors and beneficiaries will be jointly liable with the trustees for the unless the assets have been reported by the settlor (and subject to wealth tax), and the disclosure obligations have been complied with.
• French resident beneficiaries of life assurance contracts, even where taken out by non French residents, may face a 20% levy on the policyholder‟s death. „Residency may include people not currently residing in France but who have done so for six years at any time in the ten years to the date of death.

International Adviser quoted Virginie Deflassieux, associate director of French tax at PKF, as saying:

“The text of the law is not really very precise, so we are awaiting publication of a décrêt (implementing decree) to provide us with more information on the trustees‟ obligations.”

Other industry commentators have speculated that other countries may be considering similar wealth tax developments, in line with the US FATCA requirements.

Further we understand these requirements may be challenged by the EU if found to be contrary to EU principles or to Double Tax Treaties (DTT).

http://www.ilag.org.uk/library/papers/A%20French%20FATCA.pdf