EFI reports that the French Government has just denounced the 1953 Succession Duty Treaty with Switzerland, a short time before its Finance Minister's trip to Berne.

Do we need to concern ourselves with the French "change" in policy in relation to the Succession Treaty of 1963 between France and the United Kingdom?

Probably not, but it is worth working out why.

The reason given in 2011 by the French administration for their review of the ageing Swiss Treaty was that they considered taxing a succession by reference to the domicile, ie residence, of the deceased,  was too ancient, in that the" trend", or rather "la mode à a française",  is now towards taxing the recipient.

Fortunately, the British tax the estate, the proprietary shadow of the deceased at the moment before death, not the beneficiary, which means that the logic of the current UK Treaty has to be different to that of the Swiss. This substantive differential between an estate and a succession will become increasingly significant in the immediate five to ten years, as the EU starts to introduce a Germanic influenced "European" Civil law as an overriding concept in Private International law within Europe. The French notariat and Parliament are showing no signs of resisting this, we are unaware of the position being taken in Italy and elsewhere.

In that light it is necessary to establish the differential between the two concepts clearly to avoid legal confusion, wrong process an abusive taxation by tax collection agencies.

The following is our current reading of the future Swiss position:

In short, a Swiss deceased resident's French assets, be they moveable or immoveable will now be subject to tax in France. Those from both jurisdictions using immoveable property holding companies over French properties will now need to review their testamentary situation. French residents are also affected by the change in definitions which the move to French domestic rules from Treaty definitions will entail fomr 1st January, 2015.

However, note that the Freedom of movement of capital provisions in the EEA and the EU extend to successions, and the next issue will be whether the 50% threshold for a moveable to have its legal cloak ripped away and become immoveable is actually EU compliant.

One issue raised by the removal of the Treaty régime is the société à prépondérance immobilière so beloved by the French to repatriate their foreign cloaked immovables. Should not the real EU test be at least 2/3ds immovable assets - rather than 50% -  for the French requalification of a movable interest to an immoveable to bite? A mere 50% is disproportionate, goes beyond what is necessary to achieve the objective  and  gives no faith and credit in a capital market.

 

Overseas Chambers can assist in the advice necessary to raise that EU/EEA defence.