Cabinet Bornhauser, a firm of avocats in Paris has successfully
managed to have the administration admit an error "of
interpretation" by its services in pleadings in a case currently
before the Conseil d'Etat.
However the issue was to be taken to the French Constitutional
Court under a QPC procedure which will now not take place.
The administration accepted in pleadings that its interpretation
of the Parliamentary travaux préliminaires was
incorrect and that it lead to its attempt to add the levy of 1.5%
to the ISF liability of a Settlor resident in France and then to
charge that by way of joint imputed liability to a beneficiary also
resident in France. Sensible, given that the whole artificial
edifice could have been brought down had the Conseil
d'Etat seized the Conseil Constitutionnel on
the issue. However, as Bornhauser states, that may not be the end
of the matter, when they deplore the manner in which the
administration ducked a constitutional challenge.
The French administration has backed down and admitted that the
levy is not cumulative with the ISF liability (Wealth Tax) of a
The position was that the constituant was resident in France and
had made a nil value declaration of the trust assets for ISF: I
assume that he did not possess them and could not recover them from
The administration were attempting to levy the full rate
prélèvement levy of 1.5%, as a result, as whilst the
assets had been declared, they had been given no value for ISF
purposes and no tax was proffered on them. The administration
assessed the Trustees to the prélèvement, and claimed
payment under article 990J CGI from a discretionary beneficiary who
was also resident in France under the statutory joint and
several liability . They have now effectively admitted that their
interpretation of the French Parliamentary "travaux
préparatoires" may have been incorrect and have withdrawn
their pleadings on that point.
The French administration has elsewhere presented the
Constituant or deemed constituant as being the taxpayer liable for
ISF. The Constituant in question did not declare the full
"valeur vénale" of the trust fund in his ISF declaration.
The administration had therefore assessed the levy on the
trustees and then held a beneficiary resident in France liable for
the levy, which is set at the maximum rate of ISF on a gross basis,
not a net vasis of valuation.
It is difficult to see any justification for ratcheting up both
the base, from net to gross, and then the infliction of the levy at
the ISF maxiimum rate, 1.5% on the Trustee, and then changing
target on the basis of a pure deeming provision and deemed joint
and several liability to a levy or a penalty, from someone who was
not even liable for the assets under the legislation. When
placed in the light of other constitutional norms of equality
before the tax charge, particularly in relation to the means to pay
the tax concerned this fails to pass muster. A discretionary
beneficiary subject to a deeming provision simply does not possess
the rights upon which the régime seeks to place a levy upon him .
He does not possess any income rights from the assets which he is
deemed to possess, and is certainly not the taxpayer liable to ISF
even under the deeming provisions of the legislation. To then
inflict both the levy and a penalty upon him is intellectually
indefensible. Even by the iniquitous and I argue unconstitutional
"irrebuttable" deeming process in question. The legislation
attempts to nail someone - the constituant to whom to attache the
property. It is the constituant, and no one else, to whom the
legislation purports to attach the trust assets. It is in the
constituant's hands that the basis for assessment is placed, and
upon which the administration should collect both the wealth
taxation, and what is more the succession and gift duty assessments
under the general trust régime. Non bis in idem?
Technically therefore the deeming provisions contained in the
statutory fictions invented by the French have been challenged as
to their constitutionality. However, the administration has
ducked the bowling. There may be more to come in Autumn in
this case, as Bornhauser have taken up the Constitutional
cudgels over the deeming mechanisms and penalities inflicted
in the discretionary trust arena.
I have consistently stated that the entire régime is open to
constitutional attack, as the French Parliament has been missled on
the notion of a trust and what is more there has been no adequate
representation of what it actually is in the definitions
The Parliamentary debates, if they can be so
described, were swamped by white noise in the form of such
constitutional values as the fight against capital evasion, which
of course is largely irrelevant given that most British immigrants
have a trust before they arrive, coupled with the fight against tax
avoidance with no reference at all as to whether the legislation
proposed met the other equally fundamental constitutional
principles and safeguards of a civilised society governed by the
rule of law. The latter points were not even mentioned in
the Carrez Report, which very deviously
concentrated upon one aspect of a set of fixed interest trusts
without any thought to the more prevalent discretionary elements.
My thanks to EFL for the link to the text of the report.
This is only a skirmish in a fundamental attack on the
Constitutional basis of the régime.
The question arose in relation to the ISF declaration by the
Constituant that the value of the trust fund in their hands was
As I have been stating, the French tax régime in relation to
trust has all the hallmarks of being unconstitutional on basic
principles. However, we are not yet in practical position where a
case can be brought before the Conseil Constitutionnel
on the actual validity of the legislation itself. Bornhauser seems
to be getting there.
The full summary of the current position in the case is at http://blog.bornhauser-avocats.fr/index.php/2017/07/20/une-premiere-victoire-dans-la-contestation-du-nouveau-regime-fiscal-des-trusts/