Overseas Chambers of Peter Harris

Maison de la Boucterie
Rue de la Boucterie
Saint Saviour
Jersey, JE2 7ZW

34. Attention Trustees and financial institutions linked to trusts with French Connections

January 30th 2020


This short note is designed to stimulate action from Financial Institutions connected to Trusts with what are known as French connections.

I am using English terminology to explain the position, but note that the French terms are sometimes of a different scope which may not play out to the taxpayer's advantage.

In short if you are in some manner connected to a trust with a French resident beneficiary or which has French situs assets including shares on a French exchange or French shares on a foreign listing, you need to review the position at the latest annually in December. Please understand that the basic French definition of assets situated in France may not correspond to yours.

If you are he trustee of an Employee Benefit Trust with French resident beneficiaries, e.g. employees or Directors who are working in or who have retired to France, you need to ensure that you have at least approached the French administration for a decision as to whether you fall within the tolerance of non-declaration of the other beneficiaries of the trust who are not resident in France. You will note that the French declarations require technically that all the beneficiaries concerned wherever they live have to be declared. We can help you with that.

Despite a general limited exemption, pension plans held in trust can also be affected and whilst UK SIIPs with French connections have been negotiated out of the frame, not without some difficulty, such trustees, whether individuals or not, have to be sure that they are tolerated as being outside the scope of the definition of a trustee.

Trust companies and law and accountancy firms providing administrative trustee services should be aware of the risks by now given that the law taxing trusts was introduced in 2011. Contact us for further information on the declarations due, either on certain declarable events, but more specifically as to the assets of the trust on 1st January, 2020. You will also note that the French Parliament reintroduced the obligation to declare movable assets, not just immovables, in 2019. Whilst the law as to Wealth Tax (ISF) was changed to the immovable Wealth Tax (IFI), and movables were not declarable in 2018, the Fisc noticed that they had no longer any control over foreign holdings of French movables and investments for French gift and succession duty purposes. The penalty is €20.000 per declaration missed.

If you failed or fail to make the necessary declarations you will be liable to a €20.000 penalty per default, jointly and severally with the beneficiaries and/or settlor.

All the more so if you are an offshore or onshore Insurance company issuing discounted gift bonds held in trust so as to be outside UK IHT. Unless you take action in a French connection, you fall within the definition of administrateurs in article 792-0 bis 1 CGI and are therefore within the French fiscal definition of a trustee, not the unsuspecting clients to whom you have issued the bond as trustees in the English sense, to step outside IHT. Whilst some Insurers have contacted their French clients to advise them of the risk of a French connection, which can include a French resident "trustee", settlor or beneficiary, others have chosen not to. The act of putting a policy in to trust can be considered a priori to be avoidance in France, even évasion, and the presumption will be that you are involved in an avoidance scheme, irrespective of what HMRC accepts under the law of Bonds or accepts to tolerate under the tax statute. What is more if you are running an Insurance company which you have taken over from the likes of AXA under, for example, an MBO you should be reviewing the indemnities and risk clauses in the takeover documentation for possible recourse. You may be held liable by the French administration, particularly if the French resident has the nous when questioned to say that he or she is is not an adminstrateur, because you carry out that function of managing the Bond's investments and administering the annual 5% payouts.


Contact me for advice on +44 (0)1534 325879 or peter.harris@overseaschambers.com