The French 3% annual Tax on immovable property holding entities
and its application to Trustees: one should never allow an
internationally binding legal principle to get in the way of a
civil-servant's "good" statutory fiction, or for that matter a
senior French Parliamentarian's desire to mislead the planet
in a good cause.
The Old Chestnut : does a trust have legal personality and
a siège, or at least how do the French administration and
therefore their civil servants detached to the OECD
manage self-deception so effectively?
The decision which I am about to analyse was handed down by the
French Conseil d'Etat on 6th May, 2019 in the case n°
426431 Amicorp Limited, as trustee of the " The Stigell Family
Trust ". the details of the case are unavailable. The trustee could
be from any one of the jurisdictions served by the Amicorp Group
from a federated state within the USA to Mauritius.
The corporate trustee had the misfortune to have an indirect but
unspecified ownership in French immovable property. The
administration therefore alleged that it was subject to the well
rubbed 3% tax on immovable property holding entities: currently
defiling the French statute book at article 990D CGI. Indeed,
the Trustee argued an exemption under article 990E CGI attempting
to relieve itself of the 3% tax.
How was this achieved? The answer is quite simple - by ignoring
the law altogether. Never has a trust had either legal personality,
saving in Louisiana, nor had any requirement of a public office by
which its legal status can be defined. This French technique
of rendering legal and equitable issues corporate is now standard
OECD policy. The disinterested settlor of a trust has now been
cloaked with the equivalent of an unalienable founder's share
designated as an "equitable interest", which the French are shortly
to assert is therefore transferable by fiscal succession.
The point that I am making is that in a pre-Brexit scenario, an
English trustee had a degree of politico-legal protection, as the
trust as a property law right had a degree of conceptual protection
under the EU Treaty and regulatory framework, being the property
law of a Member State. That formal protection will disappear
unless the Engliçsh qualified members of the French Bar rise to the
occasion. The French private international law rules
were also capable of giving a trust a certain degree of legal
recognition as a concept of property law, not of contract. The
recent mischief is due to an administrative misappropriation and
rewording of what is certainly no more than a mere private
international law classification definition included in the Hague
Convention on the recognition of trusts, which France has signed,
but left unratified. The somewhat spineless inaction of the
French Chancellerie to the misappropriation can be
illustrated by the fact that the French Republic has ratified, not
merely signed the Hague Convention of 14th March 1978 on the Law
applicabe to agency, including fiduciary contracts, from which the
trust is expressly excluded, as it is not a fiduciary contract at
all. Did someone at the French Chancellerie foget to read
it? No one at Bercy did. Neither, apparently, did Senator
Marini, the champion of the French fiducie, his proposed civil
competitor to the trust concept. Pehaps irony is lost. The
English constitutional concept of the "Rule of Law" over civil
servants is not a continental one. It is arguable that the French
Conseil d'Etat has crossed a red line in the recent
judgment. However, one should never allow a legal principle
to get in the way of a good civil-servants statutory fiction.
Those who doubt that should read, in French the somewhat
miserable commentary upon the case by a certain Bruno Gouthière,
previously a high ranking French inspecteur de finances
now working at a Paris firm of avocats and propagating the French
administration's fiscal Gospel of Saint Thomas outside the inner
sanctum of Bercy. Having spent his administrative time
at Bercy attempting to concoct a notion that the trust was a legal
entity, and the equivalent of a contract, he is now recognising
that that administrative requalification is full of difficulty
outside that inner sanctum of quasi-religious requalification of
reality. A fiscal sea of holes or simply a reassessment
of the interior of an Emmental, by one now forced to digest it from
the taxpayer's viewpoint?
The Amicorp trust did not have that EU protection, and it is
therefore likely that English trustees will soon find themselves
subject to a thorough lack of the previous legal protection that
they previously enjoyed. Once the UK leaves the EU, they will in
particular be removed from the relative fiscal security as to
recognition as a property mechanism of an EU Member State. The
trustees might retain the benefit of a Treaty and Treaty exchanges
with France, but the French have a tendency to attempt to
subordinate statutory protections against discrimination to
residents of EEA states, rather than respecting the CJEU's
fundamental principle that the EU freedom of movement of capital
and its protection extends to persons resident in third
states as well.
What is more, as any student of Equity and Trusts will have had
branded upon their brain, the distinction between a trust and a
contract under English law principles is fundamental and fatal.
There is no cause or consideration in a trust, it is not a company.
Until recently the French accepted that the absence of an
affectatio societatis meant that a trust could not be
considered a corporate entity or even an association. The nearest,
but missing link in the Code civil is to a legal convention over
property as mentioned at article .
To give Gouthière credit, he does recognise that his prior
fiscal badmouthing was incorrect.
It has been a principle of the recognition of foreign trusts
under the French civil law, that they were considered to be
part of the law of property, not of the law of contract or
assimilated personal rights. The distinction is important as the
contractual French equivalent sponsored by a certain Pierre Marini,
Senateur is defined as a contract involving personal, not real
rights. Gouthière appears to accept that fundamental
distinction. He cannot do otherwise as the CGI itself draws that
distinction by giving each a separate status under article 969
which refers to a patrimoine fiduciaire for IFI purposes
and then to a trust under article 970.
Those already slightly on edge, should realise that the scission
between administrative law and the Rule of Law as defined for the
English by Dicey and then rule of overriding precedent over
administrative law which that implies have no equivalent status or
value in France.
The French text of the decision n° 426431 can be found
at either :
https://www.conseil-etat.fr/arianeweb/#/view-document/?storage=true
or
https://www.legifrance.gouv.fr/affichJuriAdmin.do?idTexte=CETATEXT000038458570
To summarise:
1. The Conseil d'Etat decided that for the purposes of
the 3% annual tax, a trust having an indirect interest in French
immovable property is to be considered as on a par with a French
contractual fiducie. That is a typical French fiscal
expedient of excluding legal principle by asserting an
administrative exception.
2. The main argument was directed as to whether the
administrative doctrine published specifically at §50
BOI-PAT-TPC-20-20 was correct and should be annulled.
Whilst not an infrequent pleading, that is an uphill
battle.
As the trustee was seeking to use an exemption under article
990E CGI, the Conseil d'Etat felt able to comfort the redefinition
of the law by stating that article 792-0 bis I which uses the
somewhat quaint expression "l'ensemble des relations
juridiques" entitled it to totally redraft the effects of the
trust and insist that the trust "doit être présumé, au
sens et pour l'application du 3° de l'article 990 E du CGI, avoir
son siège dans l'État ou le territoire selon le droit duquel ont
été créées les relations juridiques qui l'ont institué."
The whole concept of a siège in these circumstances is
entirely pretentious, as any English tax lawyer accustomed to the
issue of the residence of the body of trustees under English law as
modified by the legislation is aware.
What is more, in the whole context of the Common Reporting
Standard, nothing could be further from the current position
adopted by HMRC which requires a UK tax connection for a trust to
become subject to the IGA. This heralds potential issues
post-Brexit for any UK trustee holding a portfolio which
contains an asset considered to be an indirectly held immovable
under article 990D CGI.
In other words, if you are a trustee seeking to benefit from the
legal treatment which the mainstream French civil law otherwise
provides, you may find yourself excluded from using the exemption
under article 990E. What is more, if the trustees in the initial
jurisdiction have retired in favour of a trustee in a different
jurisdiction, that succeeding trustee might find itself excluded
from the exemption on that basis alone as there will be no deemed
siège left in the jurisdiction where the trust was,
in French terminology, constituted.
Whilst the Conseil d'Etat mentions "présumée" in other
words deemed, and then proceeds to state that nothing
prevents the trustee from proving that it is established in the
state of constitution of the trust, it is clear that any trustee of
a trust which has changed its proper law either in combination with
a change of forum or not will find itself in some difficulty:
7. Le paragraphe n° 50 des commentaires administratifs
publiés le 5 octobre 2016 au bulletin officiel des finances
publiques - impôts (BOFiP) sous la référence BOI-PAT-TPC-20-20
énonce que, pour l'application des dispositions du 3° de l'article
990 E du CGI, qui prévoit que la taxe instituée par l'article 990 D
du même code ne s'applique pas aux entités juridiques qui ont leur
siège en France, dans un État membre de l'Union européenne ou dans
un pays ou territoire ayant conclu avec la France une convention
d'assistance administrative en vue de lutter contre la fraude et
l'évasion fiscales ou dans un État ayant conclu avec la France un
traité leur permettant de bénéficier du même traitement que les
entités qui ont leur siège en France, "les entités juridiques de
type fiducie, trust et fonds d'investissement sont réputées être
établies dans l'État ou le territoire de la loi à laquelle elles
sont soumises". La société requérante doit être regardée, eu égard
aux moyens qu'elle soulève, comme contestant cette énonciation en
tant uniquement qu'elle concerne les trusts.
8. Il résulte des dispositions combinées des articles 990 D, 990 E
et 792-0 bis précitées du CGI qu'un trust, défini comme un ensemble
de relations juridiques créées dans le droit d'un État autre que la
France, doit être présumé, au sens et pour l'application du 3° de
l'article 990 E du CGI, avoir son siège dans l'État ou le
territoire selon le droit duquel ont été créées les relations
juridiques qui l'ont institué.
9. Ainsi, en se fondant sur l'État ou le territoire de la loi à
laquelle sont soumis les trusts pour déterminer le lieu où ils sont
établis, les commentaires administratifs attaqués n'ont pas donné
de l'article 990 E du CGI une interprétation erronée de la loi
fiscale, ni ajouté à cette dernière. Contrairement aux affirmations
de la société requérante, la doctrine attaquée, qui se borne à
faire état d'une présomption d'établissement dans l'État ou le
territoire de la loi à laquelle ces entités juridiques sont
soumises, ne saurait faire, par principe, obstacle à ce qu'une
entité qui revendiquerait le bénéfice de l'exonération prévue par
le 3° de l'article 990 E du CGI à raison des immeubles situés en
France ou des droits réels portant sur ces immeubles qu'elle
détiendrait, en estimant relever, dans le cadre de ses relations
avec l'administration fiscale française, du droit d'un État ou
territoire visé par ces dispositions, puisse en apporter la preuve
et renverser ainsi la présomption de rattachement à l'État ou au
territoire correspondant à la loi à laquelle elle est
soumise.
10. Dans ces conditions, la société Amicorp Limited n'est pas
fondée à demander l'annulation des énonciations du paragraphe n° 50
des commentaires administratifs publiés le 5 octobre 2016, en tant
qu'elles concernent les trusts. Par suite, sa requête doit être
rejetée.
There is now an entrenched and declared hiatus between French
administrative law, and the categorisations previously adopted by
Law professors and dare I presume to say, the judicial court
system.
The author has had more than 30 years continuous experience in
the different stages of development of this tax, having started as
the only English tax lawyer working at a siège tax
department of a French multinational in Paris between 1981 and
1986.
Peter Harris
24th June, 2019
www.overseaschambers.coms