As part of its fight against tax evasion, money laundering, and the financing of illegal activities, France published a decree detailing the framework of a new public register of trusts that will be accessible to the public, via an electronic platform, on June 30.
The public register is an unprecedented initiative of the French tax administration in its efforts to promote transparency through the public disclosure of personal data.
Modified Finance Law 2011-900 of July 29, 2011, originally created a reporting obligation for trustees of trusts in which the settlor or at least one of the beneficiaries has a tax residence in France or includes an asset or a right located in France.
Since that law, if the settlor, the deemed tax settlor, or at least one of the beneficiaries is a French tax resident or the trust includes an asset or right located in France, the trustee must meet the two following reporting obligations:
- a one-time disclosure of information on the creation, modification. or termination of a trust, as well as the content of the trust’s terms (that is, the trust deed but also any additional provisions regulating the trust’s operation) (article 1649 AB of the French Tax Code and articles 344 G sexties and 344 G octies of Appendix III of the French Tax Code); and
- an annual disclosure of the market value of the assets, rights, or income capitalized or held within the trust on January 1 of each year (article 1649 AB of the French Tax Code and articles 344 G septies and 344 G octies of Appendix III of the French Tax Code).
The reporting obligations apply to trusts in existence, created, amended, or terminated after July 31, 2011.
The details regarding the application of the reporting obligations were provided by Decree 2012-1050, dated September 14, 2012, and published the following day.
Failure to comply with these filing obligations will result in a fine of the higher of €20,000 and 12.5 percent of the value of the assets, rights, or products capitalized or held within the trust.
The trustee is also responsible for the payment of an annual 1.5 percent levy based on the market value of the trust’s assets.
Also, if the trust assets have not been included in the estate of the settlor or the deemed tax settlor for wealth tax purposes or the trust has not been disclosed to French tax authorities by the trustee (when the settlor or deemed tax settlor is not liable to wealth tax), a tax of 1.5 percent is due by the trustee.
As part of the government’s efforts to strengthen the reporting obligations of trustees, article 11 of the Law of December 6, 2013, on the fight against tax fraud, created another public registry of trusts (article 1649 AB, paragraphs 2, 3, and 4 of the French Tax Code).
Decree 2016-567, dated May 10, 2016, clarifies the details about this public register of trusts in articles 368-368C of Annex II to the French Tax Code.
Trustees must make declarations to the French tax administration if there is a connecting link with France (that is, when the settlor, beneficiaries, or trustees are tax residents of France or the trust assets are located in France).
The relevant declarations are the two mandatory reporting obligations mentioned above.
Currently, 16,000 entities known to the French tax administration are identified as trusts.
The information to be reported in this register is:
- the name and address of the trust;
- the date of constitution of the trust and its date of termination, when applicable;
- the date and nature of the trust declaration; and
- the identification elements of the settlor, beneficiary, and the trustee, namely:
- for individuals, full name, date and place of birth, and specifically for the settlor and the beneficiary, the dates of death; and
- for legal entities, legal names and identification (SIREN) numbers.
- No information regarding the market value of the trust’s assets will be listed in the register.
Information collected to develop the register will be kept by the French tax administration for 10 years from the date of termination of the trust.
Access to the registry will be via internet and will be open to the public.
A secure authentication procedure will allow for the examination of the data in the registry, which will be transmitted periodically to the Ministry of Justice, customs agents, and authorized agents of the French tax administration. Another decree should be published soon to explain precisely the secure authentication procedure for persons searching the register.
Registry searches will be conducted electronically through the Directorate General of Public Finances, using either the name of the trust or the identity of the settlor, beneficiary, or trustee, either through legal name (in the case of an individual) or identification number (in the case of a legal entity).
The research can be completed by adding the city or country where the trust has been set up, its date of incorporation, or for the trustee, the settlor, or beneficiary (when they are individuals) first name, date of birth, city, department or country of birth, and possibly date of death.
Each connection will be subject to a daily record of the identification of the user, its internet protocol address, and the date and time of the research. This information will be recorded and kept for one year.
France has now fully complied with the objective of Directive (EU) 2015/849 of May 20, 2015, on the prevention of the use of the financial system for money laundering and terrorist financing. Indeed, this directive requires EU member states to take the necessary steps to establish registers centralizing information to identify individuals who, at the end, own or control a legal entity or are the actual beneficiaries of a trust.
However, the public access to the register is quite surprising.
The Ficoba (bank account) database is only accessible to the public authorities and to a limited group of listed persons who need to consult it for the exercise of their profession (banks, notaries, bailiffs, and so forth).
In the neighboring area of trusts, Decree EU 2010/219 of March 2, 2010, established a national register with much more restricted access.
The Ficovie (life insurance) database has been approved by the French Constitutional Council, but only because the information is transmitted to the sole French tax administration that has the obligation to keep the information confidential.
Nevertheless, the decree establishing the public register of trusts is not in contradiction with EU law as the latter requires greater access (much beyond the tax authorities) to any reporting entities as part of their customer due diligence requirements, and usually to anyone with a legitimate interest. Indeed, the directive does not prohibit member states from providing unrestricted access to the public register of trusts.
The only limitations laid down by the directive are those imposed by the Charter of Fundamental Rights, including, notably, the right to privacy and family life, the right to protection of personal data, freedom of enterprise, the presumption of innocence, and the right of defense.
The directive does not require this access. Indeed, article 30, point 9 of the directive allows member states to restrict access to information on the actual beneficiaries when they would be at risk of fraud, kidnapping, blackmail, violence, or intimidation, or if the recipient is a minor or is otherwise incapacitated.
To address this latter risk, the French decree dated May 10, 2016, provides only that for each connection to the register, the ID and internet protocol address of the requesting user and the date and time of the search be kept for one year.
Many trustees are worried about the risk to their professional reputations and their legal liability that will arise from filing all the declarations, having broken the secrets on the information they hold as trustees. Likewise, settlors who have wanted to hide from the beneficiaries the content of the provisions made in their interest have been taken by surprise, as the French legislation will disclose testamentary dispositions.
On that basis, this decree could be considered a flagrant violation of the right to privacy.
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