Please note this article is for general information. You should not rely on it without advice on the specific facts of your case.
The French trust reporting legislation is broad and targets all the trusts with French connections, even remotely. Failure to comply with the reporting obligations is sanctioned with heavy penalties. Trustees need to regularly review whether their trust assets include French situs assets and whether the settlor and/or any beneficiaries are French resident. If they fall within the French trust framework, they need to seek expert advice to comply with their obligations in France.
Trustees are required to declare the creation, modification and revocation of any trust within 30 days of the event 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 a distribution out of the trust, or further assets placed in the trust.
On 15 June each year the trustees must declare the market value of the assets held by the trust as at 1 January. The trust assets to be declared will be the worldwide trust assets if the settlor or any beneficiary is French resident. Otherwise, the trust assets to be declared will be the French assets.
The legislation is far reaching and seeks to cover every situation where a trust has a connection with France. For instance, investment portfolio with shares in French companies, or French resident discretionary beneficiaries and even remainderman in certain cases. A potential beneficiary moving to France to study can easily be overlooked and can have dramatic consequences.
Failure to declare will result in a fixed penalty of €20,000 per missing declaration. A penalty of 80% of the tax avoided in respect of undisclosed assets and rights in trust applies in the case of failure to comply with French trust reporting obligations. This penalty cannot be lower than €20,000 and is exclusive of the €20,000 fixed penalty. The settlor, beneficiaries and trustees are held jointly liable to pay the fines.
In addition, the settlor, trustees and beneficiaries may also be liable for criminal sanctions. If the French tax authorities deem that there has been fraud, including voluntarily failing to file, then criminal sanctions may be applied. The criminal sanctions are a fine of €500,000 plus a five-year term of imprisonment.
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.