Overseas Chambers of Peter Harris

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

Comments on the French 2181 Trust2 due by 15th June for trusts with a French connection

June 10th 2020

I have deliberately refrained from providing any unremunerated website assistance to those trustees who are required to file returns this year.

Seeing some of the inadequate responses made to the issue of what is a trust on a full transparency basis, it is clear that little effort is being put into questioning what to do when a member of a family moves to France and how to indirectly prepare the ground for a French resident beneficiary or deemed settlor through a suitable restructuring.

It is clear that French  lawyers and accountancy firms are working as if unaware of the fact that it is the law of the foreign state to which the putative trust is attached that determines whether the "symptoms" of the French contractual fiscal definition apply. Make no mistake, contrary to the allegationsof the French Tax amdinstrtaion, it is not the pure Hague Convention set of privae international law teminology which applies. The use of the term "administrateur" rather than trustee, means that it cannot be.

There have been several cases where for example English trusts of land have been wrongly considered to fall within the article 729-0 I bis definition, which they do not, and time and expense has been generated in attempting to explain why the trust is licit to the French authorities and not an avoidance vehicle, when the answer is in fact a categorical "no", under the laws of England and Wales.

Those who continue to believe that the French have in some manner recognised a trust should remember the ill-fated remark of Senator Marini accompanied by a gaggle of French tax inspectors when he visited Jersey when he made a singulary arrogant and ill-fated "effet de Manche" saying "of course a trust is a contract ».  If you have not understood you need to tale advice.

The problem with that arrogant assumption, obvious to English lawyers who do not use such theatrical rhetoric and keep their hands to  themselves, is that a trust is an emanation of the law of property, not that of personal créances and obligations such as those in a contract. Apparently Fidal in particular have been making money out of unnecessary negotiation with the administration and "advice" on matters of English law in which they are not qualified in sufficient depth.

Any French lawyer who does not go back to the law referred to in article 792-0 bis I CGI is being negligent.

It is best to take advice from those who have learnt on the job rather than those learning it.

To summarise the current declaration, the Millésime 2019 Trusts 2 has not been changed yet (Given French tendency to do such things at the last minute it could still happen!), and it is that model that will need to be filed before 15th June, 2020.

My only comments which I am prepared to publish are

The structure of the 2019 Millésime Declaration was put together in a hurry, it was only published two days before the deadline in 2019, which had to be extended. As it is published under the remit of the French Finance Ministry, is that it does not fully reflect the legislation which it is meant to support. Most compliant French residents affcected elect to pay the Immovable Wealth Tax (IFI) in lieu of leaving it to the Trustee to pay a 1.5% levy ("prélèvement").

However, whilst the asset declaration forms at the exempt Cadre 7 have a section A for land,  wherever situated, upon which the taxpayer is paying the IFI, it lacks one for shares and equivalents in real property holding companies upon which the licit taxpayer will also have declared and paid the IFI, to the extent that they have an IFI liability over the threshold of €1.300.000.

The rub comes when the trustee is faced with declaring the movable assets in trust which they are required to do by a sneaky little insertion in the 2018 Finance Act, when the French fisc requested Parliament to reintroduce the annual declaration for movables held in trust. The justification for that was that they had lost the means of tracking of movable assets and investments held for French residents onthe repeal of ISF an dteh change in the declaration mechanisms. No brave soiul has yet challen,ged that onthe baiss that ther is no French tax due either by the French rsidet connection, or by the trustee

There is therefore one Cadre 7 too few. This may be deliberate, but it means that real property holding companies upon which the IFI has been paid will need to be carried to the same cadre  as ordinary movable investments, which means that it is impossible to determine the CRS consequences of the information exchanges which will arise on the cocktail of immovable assets, which are neither subject to FATCA or CRS and the movable investments which are.

The French administration on have taken up the same habits as their European colleagues, such as Germany, in treating taxpayers information as a marketable commodity.

So, having ensured that my current clients have filed on time, I am available for advice for late filers, and those who may wish to amend or supplement their declarations.

Please note that any Trust Declaration,  whether it be  the 2181 Trust1 déclaration événementielle or the annual 2181 Trust2 is an opportunity to strategically place the trust and the assets in their correct fiscal alignment, for example using the definitions of Bénéficiaire Réputé Constituant to keep assets outside the French tax net and to effectively plan by reference to the heroic attempt or rather failure made to translate the trust concept into a form of fiduciary contract.

Pleased note however that Swiss, Luxembourg  and Liechtenstein Trustees are less likely to be able to take advantage of the anglo-saxon if not English ability to exist and prosper within the laws of property, rather than those of the civil law. That has been induced by the French attempt to use a private international law recognition definition for identifying which arrangements are and are not trusts as a fiscal definition.  As a mind experiment, try making a convincing argument to a fictional HMRC compliance officer that a settlement is defined by reference to the  Recognition of Trusts Act 1987.

Finally, there is the perennial issue for those trustees holding French high quality shares and bonds in their portfolios on 31st December - 1st January . There are ways of rendering these non-French assets, thus escaping the obligation to declare these, in particular where there is no French resident individual within scope.  I would be happy to advise on such issues as to whether it is necessary to declare or not, and on the means of retaining these investments without needing to declare them for what is essentially a gift or succession duty obligation as a French situs asset.

Put simply,  the fact that the  French administration are currently unable to process and use the information that they are given or not given otherwise than in scapegoat type investigations should not tempt one into not making a correct declaration.

However, certain English accountants have been making hay out of  straw by advising that any capital gains realised by a non-resident trustee have to be declared by the French resident concerned.  That is a complete falsehood, and advice should be taken on a professional negligence claim if any French capital gains tax has been declared and paid on that basis. There is in fact no "look-through" charging mechanism to render the tax due by anyone else than the trustee on the usual basis when a trustee owns and disposes of a French situs asset. It is the Trustee's gain, not the settlor's or a beneficiary's. Please contact Peter for advice if this has happened, or confirmation advice that y a Benefciiary or a trustee does not have to declare.