This short note is designed to stimulate action from Financial
Institutions connected to Trusts with what are known as French
connections.
I am using English terminology to explain the position, but note
that the French terms are sometimes of a different scope which may
not play out to the taxpayer's advantage.
In short if you are in some manner connected to a trust with a
French resident beneficiary or which has French situs
assets including shares on a French exchange or French shares
on a foreign listing, you need to review the position at the latest
annually in December. Please understand that the basic French
definition of assets situated in France may not correspond to
yours.
If you are he trustee of an Employee Benefit Trust with French
resident beneficiaries, e.g. employees or Directors who are
working in or who have retired to France, you need to ensure that
you have at least approached the French administration for a
decision as to whether you fall within the tolerance of
non-declaration of the other beneficiaries of the trust who
are not resident in France. You will note that the French
declarations require technically that all the beneficiaries
concerned wherever they live have to be declared. We can help you
with that.
Despite a general limited exemption, pension plans held in trust
can also be affected and whilst UK SIIPs with French connections
have been negotiated out of the frame, not without some difficulty,
such trustees, whether individuals or not, have to be sure that
they are tolerated as being outside the scope of the definition of
a trustee.
Trust companies and law and accountancy firms providing
administrative trustee services should be aware of the risks by now
given that the law taxing trusts was introduced in 2011. Contact us
for further information on the declarations due, either on certain
declarable events, but more specifically as to the assets of the
trust on 1st January, 2020. You will also note that the French
Parliament reintroduced the obligation to declare movable assets,
not just immovables, in 2019. Whilst the law as to Wealth Tax
(ISF) was changed to the immovable Wealth Tax
(IFI), and movables were not declarable in 2018, the Fisc
noticed that they had no longer any control over foreign holdings
of French movables and investments for French gift and succession
duty purposes. The penalty is €20.000 per declaration missed.
If you failed or fail to make the necessary declarations you
will be liable to a €20.000 penalty per default, jointly and
severally with the beneficiaries and/or settlor.
All the more so if you are an offshore or onshore Insurance
company issuing discounted gift bonds held in trust so as to be
outside UK IHT. Unless you take action in a French connection,
you fall within the definition of administrateurs in
article 792-0 bis 1 CGI and are therefore within the French
fiscal definition of a trustee, not the unsuspecting clients to
whom you have issued the bond as trustees in the English sense, to
step outside IHT. Whilst some Insurers have contacted their
French clients to advise them of the risk of a French
connection, which can include a French resident "trustee", settlor
or beneficiary, others have chosen not to. The act of
putting a policy in to trust can be considered a
priori to be avoidance in France,
even évasion, and the presumption will be that
you are involved in an avoidance scheme, irrespective of what HMRC
accepts under the law of Bonds or accepts to tolerate
under the tax statute. What is more if you are running an Insurance
company which you have taken over from the likes of AXA under, for
example, an MBO you should be reviewing the indemnities and risk
clauses in the takeover documentation for possible
recourse. You may be held liable by the French administration,
particularly if the French resident has the nous when
questioned to say that he or she is is not
an adminstrateur, because you carry out that function
of managing the Bond's investments and administering the annual 5%
payouts.
Contact Peter Harris for advice on +44 (0)1534 325879 or
peter.harris@overseaschambers.com