{Please note that this page is no longer an accurate description of the position in 2018, following the change from ISF to the impôt sur la fortune immobilière (IFI). You should contact Peter Harris directly on this and the current position as to the filing of both types of declaration: 2181 Trust1 and 2181 Trust2}

The 2016 2181 Trust1 and Trust2 declaration campaign:

 

Offshore trustees who have made distributions of portfolio income in 2015 to a French connected beneficiary or Constituant may have missed the event declaration deadline of 31st January.  If that is the case, please contact Peter for assistance in making a late filing declaration to avoid penalties, of a substantial amount.  See below for the French administration's position at § 440.

 

One point in particular needs to be considered by most offshore trustees making the annual 2181 Trust2 declaration prior to 15th June of this year.

 

Declaration of investment portfolios

The BOI instruction at http://bofip.impots.gouv.fr/bofip/7854-PGP.html?identifiant=BOI-PAT-ISF-30-20-30-20150304 published in April 2015 made certain apparent amendments and clarification as to the obligations of trustees holding portfolios for trusts with a French Connection.

I am setting out here certain of the issues for trustees with a French resident constituant or beneficiary where the portfolio is not held through an underlying investment holding company. Those who have such an intermediate vehicle may need further advice on how to address the risks for their clients in that area under inter alia article 123 bis CGI where that article applies - régime fiscal priviligié. I will not address those issues here nor how to stay outside that provision, please contact us for advice if needed

Those concerned with declaring portfolios under the new régime will wish to note that whilst it is possible to attach an Investment Managers'  portfolio statement to the return as an annexe, with a simple reference in either section 6 or section 7, this has to be in French, otherwise a basic principle of French tax declaration will be breached.  A French tax inspecteur or contrôleur may use any English or foreign language document annexed to the 2181 Trust1 or Trust2 declaration as a formal excuse to threaten penalties as leverage.  There is a therefore a risk of penalties if you attach a portfolio statement in English or another language other than French.

Whilst we were hoping that the singularly draconian principles might be slightly rounded off in their administrative application; that has not happened, yet.

 

These modifications stem from a set of questions put to the administration by the Fédération des Banques Française, in relation to ostensibly French banker's issues with the declarative procedures.  Clarification has therefore been given but from a metropolitan French perspective, of certain, but limited relevance elsewhere.

The underlying reasoning of the French administration is that they have the opportunity to detect underlying changes in portfolio composition, and also pick up on gains and interest and dividend payments, otherwise undeclared by the French resident concerned.

To sum the clarifications up:

1.         Declaration of investment portfolios held in trust

§410 It is admitted that an investment portfolio be declared as a whole on a line in section 7 B of declaration 2181 Trust 2 (Cerfa n° 14807 ...) when held in trust, provided that two conditions are fulfilled:

-  The section relating to its description in addition to the general description of the portfolio a reference as to the detail of its content to the document detailing the movable investments making up the portfolio which is attached to the declaration; and

-  the details of the investments comprising the portfolio must be clearly and legibly indicated in the attachment,in French,  of standard format A4 paper.  The document must carry all the elements 'useful and necessary' to enable the identification of each investment.

§420.    [here the wording appears a little weird as it refers to the same declaration] This measure is also applicable under the same conditions to Declaration n° 2181 Trust2 (Cerfa n° 14807 .... ) of the valeur vénale (equivalent to realisable market value) of the portfolio on 1st January of each year. That declaration will declare the global value of the portfolio and the detailed statement of the assets will mention the value of each of them.

 

2.         Disposals and repurchase of movable assets within the portfolio

§ 430

It is admitted that acquisitions and successive sales of assets comprised within the portfolio are not considered to be modifications of the trust to be declared by the administrateur [trustee] of the trust, provided that all the proceeds of sale remain liquidities within the portfolio or are reinvested in assets within it.

 

3.         Distribution of interest and dividends arising from the management of the portfolio

§440

It is admitted that distributions of interest and dividends be globalised beneficiary by beneficiary on a single "event" declaration filed in the month of January of the year following that of the distributions.

However this measure does not apply to distributions of all or part of the proceeds of sale of one or more assets.

In addition, this measure only applies where the interests and dividends so distributed were not capitalised prior to their distribution and are taxable in the category of "revenus de capitaux mobiliers" (movable investment income).

It behoves the administrateur [Trustee)] responsible for the filing the declarations relating to modifications of trusts [2181 Trust1] to decide whether the revenues concerned fulfil these conditions.

 

We cannot stress the need to take advice on how to structure trusts with a French Connection, as Trusts which Peter has advised upon fall outside certain of these conditions, in particular the event declaration requirement at §440 of distributions of dividends and interest in the following January owing to the manner in which he has advised that the underlying assets be structured.  Most accounting firms and bank trustees will not be aware of these possibilities, neither will trustees relying on mere accountancy advice.

 

The French text is reproduced here:

 

1. Déclaration du portefeuille-titres mis en trust

410

Il est admis qu'un portefeuille-titres soit déclaré dans sa globalité sur une ligne du cadre 7 B de la déclaration  2181 TRUST 2 (CERFA n° 14 807, accessible en ligne sur le site www.impots.gouv.fr à la rubrique "Recherche de formulaires"), lorsqu'il est mis en trust, sous réserve que les deux conditions suivantes soient remplies :

- la case réservée à la description doit comprendre, outre les éléments généraux de description du portefeuille, un renvoi, pour le détail de son contenu, au document joint à la déclaration détaillant les valeurs mobilières composant le portefeuille ;

- le détail des valeurs mobilières doit être clairement et lisiblement indiqué dans le document joint, en langue française, sur des feuilles papier au format standard commercial A4. Ce document indique tous les éléments utiles et nécessaires à l'identification de chaque valeur mobilière.

420

Cette mesure est applicable sous les mêmes conditions pour la déclaration  n° 2181 TRUST 2 (CERFA n° 14 807, accessible en ligne sur le site www.impots.gouv.fr à la rubrique "Recherche de formulaires") de la valeur vénale du portefeuille à chaque 1er janvier. La déclaration mentionnera la valeur globale du portefeuille et le relevé détaillé des titres mentionnera la valeur de chacun d'entre eux.

2. Cessions et rachats de valeurs mobilières à l'intérieur du portefeuille-titres

430

Il est admis que les achats et ventes successives des valeurs contenues dans le portefeuille mis en trust ne sont pas constitutifs de modifications à déclarer par l'administrateur du trust, à condition que toutes les sommes provenant des cessions de titres restent en liquidités dans le portefeuille ou soient réinvesties en titres du portefeuille.

3. Distribution d'intérêts et de dividendes issus de la gestion du portefeuille-titres

440

Il est admis que les distributions des intérêts et dividendes issus des valeurs mobilières du portefeuille mis en trust soient globalisées par bénéficiaire sur une seule déclaration événementielle à déposer au mois de janvier de l'année qui suit celle au cours de laquelle ces distributions ont été effectuées.

En revanche, cette mesure n'est pas applicable pour les distributions de tout ou partie du prix de cession d'un ou plusieurs titres.

En outre, cette mesure est applicable seulement si les intérêts et dividendes ainsi distribués n'ont pas été capitalisés préalablement à leur distribution et sont imposables dans la catégorie des revenus de capitaux mobiliers.

Il appartient à l'administrateur du trust chargé de déposer les déclarations au titre des modifications du trust d'apprécier si les produits en cause répondent à ces conditions.