Overseas Chambers of Peter Harris

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

Has the French Trusts régime met its match in Président Macron's planned removal of ISF?

July 10th 2017

Président Macron's Government has confirmed his intention to remove Wealth Tax as such by 2019 and convert it into a tax upon high value immovable property. Whether that means that l'impôt de solidarité sur la fortune will be renamed is another matter. Given the political intention it will be. However, please note that Switzerland has a Wealth tax and that trusts are equally scrutinised under that régime, although without the same degree of incomprehension is non-appréhension as it France. Switzerland manages to make the vital distinction between trusts set up by individuals resident in Switzerland, and those set up by individuals prior to moving to Switzerland. France is unable to do so, because of various degrees of interpretation of its different and conflictual Constitutional values.

The reform of the net wealth tax (impôt de solidarité sur la fortune) - which will involve restricting its scope and turning it into a tax on high-value immovable property - will be included in the 2018 Budget but only come into effect in 2019.

In other words, there will now be a structural and conceptual missmatch with the tax régime set up for trusts in the loi de finances rectificative pour 2011.

That régime was designed to implement a substitute for unpaid ISF in the form of a prélèvement or levy on trustees who either had assets in France or whose trust had French settlors, deemed settlors (a perverse fiscal fiction analagous to enforced forced heirship) or mere resident beneficiaries. In short, if someone liable did not pay their ISF in France, the trustees would have to pay the equivalent, on a gross, not a net asset basis of 1.5%. That is the top rate for ISF. This has been advertised by the administration as a genetic combination of a stick and a carrot. However the manner in which the €20,000 penalty for any single missdeclaration or omission has been used as a bludgeon may still remain a threat in the gift and succession duty sector even after the proposed changes are implemented by the loi de finances 2018 in 2019

It is very likely that that aspect of the 2011 legislation will have to be amended, as it covers not only high value immovable properties, but also movable assets such as shares.

It might to be too early to consign all the effort which has been expended in the past rehabilitation of certain trusts with French connections to the grave past, and celebrate in the form of a wake.

One of the objectives of the 2011 legislation was to create a form of fiscal forced heirship by blood line transferring the succession through the trust to the next generation, but treating certain, if not all beneficiaries as deemed settlors having the fiscal "ownership" and fictive possession of the trust assets.

That fictional transfer is subject to succession duty in France under article 792-0 bis II CGI and the so-called "irrefrageable" presumptions which the administration asserts were created by that article. That they are rebuttable is a legal matter which has yet to be advanced by a French avocat before the constitutional court.

It is therefore likely that part of the current declarative régime for trusts will remain intact, and that the current unsatisfactory administrative re-definition of the trust as a quasi-contractual vehicle will remain entrenched in French minds and approach. WXhilst this appears ot hav ebeen poo pooed by certainFrench adovsers in ondon, perhaps they should re-read, if not read the deliberate drafting of the definition in article 792-0 bis I before assulmng that the trust is tretad as a property law concept as opposed to a fiduciary contract?

Le contrat de trust will remain a fallacy for years to come. Some French advisors haven't noticed the fundamental issue, believing that the trust concept as advanced by article 792- bis I CGI is sufficient to itself. The definition refers to the droit of another state, which implies that the purported definition is therefore relative not absolute fiction.

This is unfortunate, as at least in the past millennium, it had been well established in France that a trust was a property law vehicle and not some fiduciary contract stemming from an overheated "anglo-saxon" imagination.

Finally, while plans to introduce a flat 30% tax on personal capital income were confirmed, no details were given regarding the timing of the reform.