France may not be the first country that springs to mind around trusts, but the country does have some relevance for wealth practitioners.

France is very much in the news at present because of the country’s presidential elections. But it is useful – and possibly a good way of retaining a sense of perspective – to consider other trends playing out in the country. France is not always thought of as a place where trusts have a lot of traction because it isn’t a Common Law jurisdiction. Well, neither is Switzerland, but as international developments have shown, there is recognition of these structures. It is useful to have an outline of what can be done with trusts in France. Maitland, the international law and funds administration firm, weighs in with this article from a senior associate, Cecile Schlub. This will hopefully illuminate what might have been an impenetrable area and create food for thought. As always, views of guest contributors aren’t necessarily shared by the editors of this news service. Readers who wish to respond should email tom.burroughes@wealthbriefing.com

In accordance with Article 2 of the 1985 Hague Convention on the law applicable to trusts and their recognition, the French tax code defines trusts as the legal relationships created - inter vivos or on death - by a person, the settlor, when assets have been placed under the control of a trustee for the benefit of a beneficiary or for a specified purpose. 

The French tax administration however still takes a creative interpretation of trusts relationships. For example, trustees are defined as “administrators”. The French tax administration usually disregards trusts and trustees in the asset ownership structure, and deems a direct connection between settlors and French assets instead for tax purposes. 

French lawmakers have taken steps to acknowledge trusts as a legitimate means of holding French assets, and therefore making them subject to French income tax, wealth tax and inheritance tax in certain cases. Nevertheless the overall perception in France still tends to be that trusts are a means to avoid tax and are treated with suspicion.  

In an effort to regulate the taxation of trusts in France and in the context of a broader fight against tax evasion and fraud, French lawmakers have taken a number of measures to determine with certainty the French assets owned through trusts, and the identity of the individuals behind the trust structures. 

Trust reporting 
Trustees of trusts that have French resident settlors, beneficiaries, or hold French assets as defined in the law, in particular real estate, have an obligation to make two types of declarations. 

1.    Firstly, trustees of French connected trusts have an obligation to report to the French tax administration any new constitution, modification or termination of a trust with a French connection within 30 days of such event. 
2.    Secondly, trustees of French connected trusts must report the market value of their assets annually before 15 June, regardless of their value and even if these are owned indirectly by the trust. Sanctions for failure to comply with this obligation are a fine of €1,500 to €20,000 and up to 80% increase on any tax payable.
Both declarations include the identity of the settlor, the beneficiaries, the trustee and the main terms of the trust. They have to be filed in the prescribed form in French and be submitted to the tax office dedicated to non-resident taxpayers. 

Public register of French connected trusts
The French government created a public register of trusts in May 2016, with the view to fighting tax evasion and fraud and in order to promote tax transparency. To date, 16,000 trusts having a French connection (i.e. having French settlors, beneficiaries or assets located in France) appear on the register. Details include the date of establishment of the trusts as well as the names of their settlors, trustees and beneficiaries.

The register was originally made publicly and freely available to all French taxpayers through their own private access to the French tax administration website on 4 July 2016. An American citizen who was also a French tax resident immediately challenged the public nature of the register, on the ground that it constituted a breach of her fundamental right to privacy because the details of the trusts which she had established for her succession planning were disclosed on the register and available for all to see. 

Access to the register was therefore suspended on 22 July 2016 pending the decision of the French constitutional court on the compliance of the public trust register with the French constitutional right to privacy, and on the basis that the nature of the personal data which was accessible through the public register could lead to the disclosure of succession planning elements of persons whose names appeared on the register and potentially subject them to various pressures.  

On 21 October 2016, the constitutional court ruled that giving public access to the register in the name of tax transparency and the fight against tax fraud was disproportionately detrimental to the fundamental principle of privacy, and therefore access to the register should be suspended.  

Accordingly, access to the register is still suspended for the time being. As the existence of the register itself is not in question, it is possible that a new, perhaps more restricted version of the trust register may replace the original register. In any event, the tax exposure of French connected trusts is not affected. 

French property ownership
As an alternative to holding French property through trust structures, French property may be owned through civil companies (“sociétés civiles immobilières” otherwise known as “SCIs”). There is no public register disclosing the identity of the beneficial owner of an SCI. The French tax administration normally levies a 3% tax on the market value of any property owned in a trust, but provided that information on the beneficial ownership is disclosed to the tax administration confidentially or that an undertaking is provided to give this upon request, SCIs will not be liable for that tax.

French SCIs also allow for some flexibility in ownership and some efficient tax planning for non-residents. For example, it is possible to structure debt against an SCI so as to reduce the inheritance tax and wealth tax exposure efficiently.