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French tax reminder: trust reporting obligations

The French trust reporting legislation targets all trusts with French connections, however remote. Failure to comply with the reporting obligations is heavily sanctioned. Trustees need to regularly review whether the trust includes French situs assets and whether the settlor and/or any beneficiaries are French residents.

Reporting obligations

Trustees are required to declare any creation, modification and revocation of a trust within 30 days if the settlor or any trustee or beneficiary is French resident (or if any trust asset is situated in France). Declarations are also required when there is an asset distribution, or when further assets are placed into the trust.

By 15 June each year the trustees must declare the market value of the trust assets as at 1 January. The assets to be declared will be the worldwide trust assets if the settlor or a beneficiary is French resident. Otherwise, the declaration is limited to trust assets situated in France.

The legislation is far reaching and seeks to cover every situation where a trust has a connection with France. For instance, shares in French companies, or French resident discretionary beneficiaries and even remaindermen in certain cases. A potential beneficiary moving to France to study can easily be overlooked and can have dramatic consequences.

Sanctions

Failure to declare will result in a €20,000 penalty. In addition there will be a penalty of 80% of the tax avoided in respect of trust assets not duly reported.

The settlor, trustees and beneficiaries may also be liable for criminal sanctions. If the tax authorities deem that there has been fraud, including voluntarily failing to file, then criminal sanctions, including a fine of €500,000 plus a five-year term of imprisonment,. may be applied,

If the fraud takes place as part of a group and/or involves a series of aggravating actions, these sanctions are increased to a fine of €3,000,000 plus a seven-year term of imprisonment. The use of trusts for tax evasion is an aggravating action.

The severity of the potential penalties makes it essential for trustees – and indeed all those involved with French connected trusts – to review their reporting obligations now.

Further information

For further information please speak to your usual Druces contact or to: