As a French trained tax lawyer, and national, I have
been trained to be sceptical about whether a tax provision is
constitutionally valid or not. I am known for being sceptical
as to whether the régime defined in article 14 of the French
loi de finances rectificative n° 2011-900 of
29th June, 2011 is constitutional given the excessive use of force
over foreign property rights, and foreigners outside France.
I am also known for having tipped off HMRC in 2004, following
a discusion with a French colleague that the French Tax Treaty
negotiating team had not been entirely transparent to their HMRC
colleagues about their proposed modification of the interpretation
clause in the draft Income Tax Treaty with a view to and I
translate "knobbling those English with their trusts".
The Treaty was "pulled" as a result of that and certain other
factors.
The "lutte" of the French administration
against tax evasion, is put forward as an elevated constitutional
value. Let us see to what extent that is no more than a
smokescreen for a far worse form of discrimination which goes
beyond that laudable aim. The French administration are
attempting to take out their own political and economic
failings on the laws of the remainder of the planet simply because
their "constitution" has been reduced to writing. They simply do
not respect its principles, and leave the taxpayer to challenge
their abuses.
This process of constitutional analysis will be alien to
the common law practitioner, as such issues are dealt with in other
ways under the British constitution. For example, the case of
Ingenious started from the basic common law rights which both the
Crown and Parliament are required to respect where these are not
directly and specifically amended by statute. It requires a very
alert awareness of the issues of principle and exception at various
levels of a social contract constitutional system. Hence the need
to instruct an aware French speaking trust lawyer and a French
constitutional practitioner, in this area.
It is becoming clear that the French Conseil
Constitutionnel's record in ruling on the issue of
constitutionality in appeals in tax issues is a strong and
principled one. It applies the law.
For example, in 2004, on a procedural request from
the Sénat on a Finance Bill proposal,
the Conseil Constitutionel held that it was
unconstitutional to charge an individual,
a nu-propriétaire, to ISF who, by definition had
no income from the asset. The usufruitier has the
responsibility for annual taxation to Wealth Tax given that
they had the income rights. To attempt to lay the tax on the
shoulders of an individual who did not have the income was
therefore unconstitutional. in that it breached two fundamentakl
constitutional rights. That was on the basis of the constitutional
value or principle that tax liability has to be allocated to those
able to contribute. Whence the principle that works of art are
exempt from ISF, or Wealth Tax, as they do not inherently produce
income.
In a related issue, the Conseil
Constitutionnel has also declared unconstitutional public
access to the Register of Trusts. It has not been asked yet to
rule on the constitutionality of the law itself. There is a
point where declaring the régime essential for anti évasion
purposes, both as to tax and capital movements becomes
unconstitutional when there is no possibility of a review of the
issue as to whether there was any evasion or avoidance. This
is an inherent theme in most French anti-avoidance provisions, as
was seen in the 3% tax ruling by the CJEU in its Elisa and Rimbaud
decisions and subsequent cases, where absolute presumptions were
reversed where there were information exchange provision in
force.
The Conseil Constitutionnel has also recently
dealt a fatal blow to the French administration's attempt to
enforce irrebuttable presumptions in tax matters. Article
792-0 bis CGI formulates at least two of these irrebuitable
presumptions as to entitlement and as to transfer in its II and
III. I stress here that the tax administration has declared that it
considers the proprietary allocations of fiscal assets in a trust
to be such a presumption irrefrageable in the
preliminary work on the projet de loi
(Bill). In Decision n°2016-614 QPC of 1st March,
2017 the Conseil Constitutionnel upheld a
preliminary appeal from an individual taxpayer as to
the présomption irréfrageable in article 123
CGI on deeming the amount of income that was to be subject to
taxation under the article, without the taxpayer being given the
opportunity to evidence that there was no intention to evade
taxation.
One of the main principles argued for the somewhat ludicrous
régime under article 792-0 bis CGI is just that: a trust is
considered to be a tax evasion entity, without any leeway, so
justifying the deemed succession rules laid down in article
792-0 bis II CGI.
The article in fact creates a form of fiscal forced heirship
over an imagined and fictional entitlement, without the person so
yoked in, or their heirs, having the property right or income
to pay it. In particular as to deciding who is the
deemed constituant of the trust when the settlor has died
prior to the coming into force of the law in 2011. It matters not
to the French whether the Settlor is interested in the trust assets
or not, although article 784 CGI does make a gesture in that
direction, in that there is no presumption of property where the
deceased individual concerned has not actually intermeddled with or
received income from the trust in the year prior to their
decease.
There are other reasons why the constitutionality of the Trust
regime can be challenged.
It is already difficult for a foreign trustee to accept
that they have been converted into a contractual
administrator. There is no condescension to a definition of
the term "adminsitrateur" given in the defining French
article nor in the executive orders setting out the declaratory
requirements nor even in the administrative instructions. The
actual definition of a bénéficiare provided in the adminsitratuve
instructions is to say the least far removed frorm the equitable
definition of that term under the law governing the trust to which
the article is subject. It is becoming less difficult to
accept that the regime is unconstitutional in the event of
penalties for declarative omissions.
May I suggest that any trustee, or beneficiary take advice on
whether the French régime when applied to their situation is
constitutional? Merely going under the yoke of foreign
requalification of a property régime into a mere fiduciary
contract, is to accept that a foreign administration has the right
to treat your law as non-existent. That in itself is a flagrant
disobedience of the Hague Convention on Agency, which states that a
trust is not a fiduciary contract and is excluded from the
definition of agency. France has ratified that Convention.
Underthat Conventon the trustee is not a mandataire, which n effect
is exactly what article 792-0 bis I CGI defines them as.
The Conseil Constitutionnel has also held
Commissioner' Moscovici's attempts to short circuit his country's
own constitution by the insertion of the Country by Country
reporting requirements argued through the European Parliament,
as unconstitutional. The Conseil held these
to be contrary to the basic freedom of entrepreneurship guaranteed
under the 1879 Déclaration as a fundamental
constitutional value. The current French influence at the OECD,
which is another thorn in the side of honest taxpayers could also
be counteracted by a declaration of non-constitutionality. The OECD
is also attempting to requalify trusts as contracts without even
having the objects clause in place in its constitutional treaty
enabling it to do so.
Whilst the number of questions prioritaires de
constitutionnalité ("QPCs") is rising, none has yet
addressed the actual constitutionality of the definition in article
792-0 bisCGI and the other articles which hang
off it. It would be unfortunate were the mounting number
of QPCs to allow the Conseil
might to consider that it has already decided the issue, simply
because no one has raised it directly!
Overseas Chambers can provide advice to onshore and offshore
trustees on how to approach this issue with a French constitutional
lawyer to invoke the procedure known as a QPC in
a situation where the French tax administration takes the matter
"to the edge".
It would be very naive to assume that any tax administration or
politician in the current scenario of mandatory information
exchange is going to defend the property laws of its own country or
their operation. HMRC has done nothing except vilify the trust in
international organisations such as the OECD, and the French
administration has done nothing to justify
the usufruit dismemberment as a mere carve out in
the United Kingdom. It falls to the irrebutably "deemed" taxpayer
to defend themselves against these admitted fiscal fictions before
they become an alternative economic reality. It is not the
taxpayer's place to be treated as a Don Quixote by the very
administrations that are tilting at foreign imaginary
windmills.