I will start from the depths and move up.

The French administration has seized the opportunity to attempt to invalidate its prior doctrinal position on trusts in relation to the new legislation:

Instruction BOI-ENR-DMTG-30-20121016 of 16th October, 2012

The text of the 2012 Instruction can be found at

http://bofip.impots.gouv.fr/bofip/7855-PGP.html?identifiant=BOI-ENR-DMTG-30-20121016

 

The 2012 Instruction sets out the following timeline for its scope of application :

1. Trusts constituted prior to 30th June 2011 with two further sub-distinctions as to movements:

a. prior to 30th June 2011 and

b. after 30th June, 2011

and

2. Trusts constituted after 30th June, 2011

The following are general comments, not advice, and need to be taken as such. Each case will need to be presented against these to see exactly which principles it can employ in each set of circumstances.

There is a distinction drawn between 1. a Trust set up and movements with in it under the  administrative doctrine priot to 30th June 2011 , which is specifically retained and validated for those purposes, and  those subject to the new  doctrine at 2. for which the prior doctrinal positions are stated not to apply; for these, only the BOFIP instructions post 30th June, 2011 can be asserted against the administration, not the old one.  However that is a question of internal administrative argument, and of course, if a Court says the contrary the administrative doctrine has to give way.

In other words, what the BOFIP says is one thing, what the Courts may say is another issue entirely.

The French administration have agreed therefore within this confirmation that the only doctrinal positions that can be used against them are those in the above categories.

 

Note that the 2012 Instruction also attempts to allocate deemed gifts and death dispositions considered to have been made through a trust vehicle after 30th July, 2011 to the new rules.

It is therefore essential to ensure that the initial status of the pre 2011 trust is defined prior to 30th July, 2011 to ensure that no further movements have been made in beneficial right or capital attributions since that time. That opportunity has been available at Cadre 5 of the Trust2 declaration, which most trustees may have mistaken for a trap, rather than taken as an opportunity.

One example would be where there are dynastic trusts with English land, and the settlor had died prior to 30th July, 2011. It is essential in these cases to be in a position to define exactly what the beneficiary's rights are and of what they consist. For example,  where the French connected Beneficiaries rights are subject to a return to the English family, in other words their rights are relative,  there may be a perfectly legitimate and indeed fair method of ensuring that the succession duties on that the beneficiaries' decease are alleviated, under pre 2011 principles. Those included the right to assimilate the English trust mechanisms to their French counterparts, which are inevitably not identical.

Comparing laws is one thing, the main interest and advantage lies in their contrast.

Note also the distinction between :

1. the prélèvement basis, which is based on the value of the assets themselves, in a form of look-through basis; and

2. the basis for gift and succession duty, which is the net value of the gift or succession, and which is declared separately.

Property, such as English land,  which to take an example, is subject to a requirement to be returned to the main dynastic trusts in England might be reduced in value owing to the "charge de retour", or even excluded from the basis as a matter of principle. It depends upon the facts of each case, and the values in issue

The 2012 Instruction goes into some detail as to whether subsequent movements in capital and attributions are taxable to the extent that these can be qualified a transfers to oneself, or otherwise outside the scope of gift or succession duty assessment.

It is not possible here to go into any great detail as to principle  on this point, as it will be the facts, the trust rights and how these are determined which classify the issue. Certainly where the trust has been through IHT and /or probate prior to 30th July, 2011, there will be a very different approach required.

This type of analysis can lead to the French resident beneficiary's right being carved out to a greater or lesser extent from the main trust fund, and relativised as being less than full entitlement, on the one hand, and also, for example, being  subject to a charge de retour, under the law governing the trust, which by definition is not French.  There are implications both for the value an what is more the nature of the rights concerned.

Note that the question of the compatibility of  the French Trust Régime with the EU and EEA freedoms of movement of persons and of capital within the EU has yet to be tested. It frankly is not, and the French know it.

The subsequent ramifications for such issues as Pension schemes in trust format for the self-employed moving to France have also yet to be assessed.

Note that the Maastricht strengthening of the freedom of movement of capital in 1993, is extended to third countries, the BVI included, and that  where there is a functioning TIEA or adequate information availability, the French cannot apply  fiscal discriminatory tactics. That principle was established by the Elisa case, and subsequently confirmed in other CJEU caselaw strengthening that pre-existing principle. Each time the French administration is taken before the CJEU it loses, and its Conseil d'Etat has taken up that challenge within its domestic jurisdiction.  The recent haemorrhaging of high level French civil servants from Minefi, put off by the continued political requirement of non-observance of EU rules  will not assist the administration.

There should be no hesitation in asserting such rights within the EU context as the French administration are well known for passing laws which subsequently have to be repealed on orders either from the EU Commission or from the CJEU  itself, whether that be on a complaint or a preliminary ruling basis. One is tempted to remark that  Europe would be agreeable, were it not for the Member States' administrations attempts to sabotage the instigation of the freedoms it imposes.

It is important to bear in mind that the process of attribution of rights in the prior doctrinal regime was more flexible than that under the new.

It is also important to bear in mind that the concept of an immovable, or "immeuble", under the Anglo-French succession duty Treaty of 12th June 1963, in French, will by definition require the French administration to accept that a trust of land, whether under LPA 1925, SLA 1925  or TLATA 1996, whether with trustees or not, is an immovable, not a trust, under the French language version of the Treaty.

A trust of land, even with trustees, under English PIL principles,  is an immovable, not mere land.

The intricacies of the application of English or for that matter foreign trusts law in relation to the French attempt to apprehend them  need a step by step approach through the 2012 BOFIP instruction and, where applicable the prior doctrine to appreciate whether it is the foreign law that determines the rights, or the French attempts at artificial deeming. They have already had to introduce a distinction between absolute transparency in the prélèvement context, which does not take into account trustee indebtedness, and the succession duty applications, which do require the net position, that is debts and assets,  to be taken into consideration.

There is therefore money to be saved here, and obstacles to free movement to quantify, and remove.  Note that British and the Irish trusts have always been protected against an assertion that these are contracts in the Community, now the Union  legal order, to which the French have subscribed, and  excluded from the Hague Convention of 14 March 1978 on the Law Applicable to Agency which the French have ratified, and which therefore forms part of French internal law since its entry into force on 1st May 1992.