On 30^th March 2022, the French tax administration published a deceptively short notice that it had updated its two existing instructions (its doctrine not a guideline) regarding the reporting obligations of Trustees under Article 1649AB CGI and Articles 369 to 369 AB of Annex II CGI. Link to BOFIP notice here.

Bear in mind that the previous changes in 2020 were designed to implement the EU Money Laundering Directives' provisions in relation to trusts, which relation to which the French political side of the administration had been forceful. The French Finance Ministry had delegated the responsibility for creating and aminating the French register of trusts to the Tax administration immediately the Register ws introduced..

However, that is not the whole story by any means.

Article 1649AB CGI has in fact extended the scope of the declarations to include trustees of trusts who have entered into a professional or business relationship with certain French categories of legal, tax, accounting and investment professionals to name but a few.

Its first paragraph reads:

I.-L'administrateur d'un trust défini à l'article 792-0bis dont le constituant ou l'un au moins des bénéficiaires a son domicile fiscal en France ou qui comprend un bien ou un droit qui y est situé, l'administrateur d'un trust défini à l'article 792-0 bis établi ou résidant en dehors de l'Union européenne lorsqu'il acquiert un bien immobilier ou qu'il entre en relation d'affaires en France au sens de l'article L. 561-2-1 du code monétaire et financier ainsi que l'administrateur qui a son domicile fiscal en France sont tenus de déclarer les informations suivantes :

This sets out the French Connections (nexus) which trigger reporting requirements and give rise to penalties etc.

The point to note is that a trustee acquiring an immovable in France is caught by this, but also note that seeking advice from any of the professions caught, including avocats notaires, experts comptables, huissiers de justice through to investment professionals also triggers a technical declaration requirement. This is not limited to creating a French company to hold immovable for the trust, or using a foreign company to purchase a French immovable. A failure to declare a foreign arrangement which falls within the French fiscal definition of a trust (including foundations and anstalts), not only runs the risk of tax penalties but also severe money laundering sanctions. Note that the French extended the Hague Convention's definition which they had signed to include these arrangements, without ratifying the Convention of 1984.

In effect the definition of a trust limited to taxation issues at article 762-0 bis CGI, which is hardly a satisfactory legal definition at all, is now leaking out into the compliance and legal areas of the French legal system as no French lawyer has yet had the gumption to challenge it.

Whilst the remainder of the articles in the legislation have not been modified since 2020, and still remain in force as they were, the administration appears to have introduced a further exception from declarations for trustees established in jurisdictions with administrative fiscal assistance agreements with France. This is not an innocent change. It may be that the French tax administration are struggling with the data filed by compliant trustees, bit there is more to it than that.

This might appear to be a relief for a hard-pressed lay trustee of English will trusts with beneficiaries or even assets in France, but it is not that simple. For example, it certainly is no longer possible to keep one's head below the parapet as a trustee/beneficiary of a simple offshore life insurance bond issued in trust without taking advice.

Continuing to make declarations may still be the best option.

The question is how to be sure that seeking assistance from a French professional does not trigger a reporting requirement. Expecting the fullest understanding from a French avocat whose advertised specialisation is in American trusts may be optimistic when dealing with a British (onshore or offshore) trust arrangement.

This is not as straightforward as it might appear as the French professional as well as the other administrations consulting and using the French Trust Register as their source of official information on the trust or arrangement concerned are now required to report anomalies between whet is declared to them and what appears on their consultation of the Trust Register. To quote the Instruction :

"L' article L. 102 AH du LPF, créé par l'article 14 de l'ordonnance n° 2020-115 du 12 février 2020 renforçant le dispositif national de lutte contre le blanchiment de capitaux et le financement du terrorisme, prévoit en outre une procédure de signalement des divergences. Conformément à cette disposition, les personnes assujetties aux obligations de lutte contre le blanchiment des capitaux et le financement du terrorisme mentionnées à l'article L. 561-2 du CoMoFi ainsi que les autorités de contrôle de ces personnes, mentionnées à l'article L 561-36 du CoMoFi, doivent signaler à l'administration toute divergence qu'elles constatent entre les informations conservées dans le registre des trusts prévu à l'article 1649 AB du CGI et le registre des fiducies prévu à l'article 2020 du code civil et les informations sur les bénéficiaires effectifs dont elles disposent, y compris l'absence d'enregistrement de ces informations."

The question is how can the Trust Register be "informed" and completed for non-EU trusts, when there is no declarative requirement enforcement by the Frencn tax administation, owing to CJEU judgments and rulings on the Freedom of movement of Capital with Third States? There is clearly more afoot.

Whilst the inconsistency between the declaratory obligation and the doctrinal exemption might be explained by the Tax Administration being the collector and the guardian of information on the Register of Trusts used by the remainder of the French administration and professionals for example, as means of identifying and regulating trust and beneficial entitlement to French situs assets, that is not conclusive. What it does mean is that there is now no effective barrier or restriction on information flowing out from the Tax administration to other French administrations as the information it gleans and obtains from tax information exchanges can now circulate, whether automatic or not.

The notice instruction and the modifications carried to the underlying instructions address what the French administration now terms a French nexus (the French connection), and also the various reporting obligations and related tolerances, the possible reporting exemptions as well as additional details on the public register of trusts.

However, the most important point to note is that Article L. 561-2-1 of the French Code monétaire et financière is now linked into the tax structure by rendering any advice sought from a professional on a trust with a potential French connection liable to an immediate declaration of its existence to the French tax administration. See the full text below. That is rendering the Tax administration competent in matters which previouly were outside their jurisdictional field.

In parallel, France's 2022 Financial Law, enacted on 31 December 2021, extended the scope of certain anti-tax avoidance provisions to trusts. The settlor or beneficiary deemed to be settlor of a trust is presumed to satisfy the 10% holding requirement for anti-avoidance purposes (income tax) of Article 123 bis of the CGI.

Whether onshore or offshore, trustees may need to think twice before triggering an Event declaration requirement under article 2181 Trust1 by seeking French legal, tax, accounting or investment advice from a French professional who may feel it incumbent upon themselves to require the filing of a return under the French implementation of the EU Money Laundering Directives or report a trustee for not doing so.

The worst side of the changes is that in addition to any other French administration using the Register, an French professional coming into contact with a trust is now required to report any discrepancy, omission or anomaly with the information declared on the Trust Register, which is now being transformed into a substitute for a quasi-corporate register. The 2181 Trust1 "event" declaration being the equivalent of the déclaration d'existence.

Don't forget that the 2181 Trust1 "event" declarationis also required within the month of death to declare indirect gifts and internal transfers of interests within the trust ad the decease of the constituant or deemed settlor for gift and succesion duty purposes. These will not be picked up on automatic information exchanges unless the French administration are intending to transpose information gleaned from foreign administrations such as HMRC directly without the trustees' permission or declaration.

As Overseas Chambers is established outside the EU and the United Kingdom, I can give preliminary advice to trustees outside France before they trigger a French reporting requirement by simply seeking advice, for example acquiring a French property through a company or even acquiring French investments.

See the background summary on the resources page (link here): a forfeitary fee will be charged for the rotating password enabling a copy to be taken Contact oc@overseaschambers.com for transfer details