Res. No. 2011/37 (ENR)

December 30th 2011

30th December, 2011 © Peter Harris

Literal translation of the French Administration's circular concerning declaratory obligations for Trusts of 23rd December, 2011.
TITLE : Impôt de solidarité sur la fortune (ISF). Droits de mutation à titre gratuit. « Prélèvement » sui generis on trusts under article 990 J of code général des impôts. Taxation of assets and rights placed in a trust. Declarative obligation.
Office of source: Bureau C 2
Date of publication : 23rd December 2011
REFERENCE : RES N° 2011/37 (ENR)

+ QUESTION

Article 14 of the first loi de finances rectificative pour 2011 (n° 2011-900 du 29 juillet 2011) specified the rules of taxation of the property comprising a trust both for Wealth Tax [ISF] (art. 885 G ter of code général des impôts) and for gratuitous transfer taxation (art. 792-0 bis of the same code).

Also, the new article 1649 AB of the code général des impôts (CGI), instituted by the said article 14 of the first loi de finances rectificative pour 2011, imposes filing obligations on the administrator of a trust , default or insufficiency being sanctioned by a fine.

What are the trusts whose administrators are concerned by these filing obligations?

+ REPLY
Article 1649 AB CGI, instituted by article 14 of the first loi de finances rectificative pour 2011 (n° 2011-900 of 29th July 2011), lays down that the administrator of a trust must file a declaration of the constitution, the modification, or the extinction as well as the terms of the trust. This article also requires the filing of an annual declaration of the market value at 1st January of each year of the assets rights and accumulated income placed in the trust.

All trusts meeting the definition set out in paragraph 1 of de article 792-0 bis CGI are therefore subject to filing obligations, subject to the following reserves.

A. Trusts excluded from filing obligations

Administrators of the following types of trusts are not subject to these filing obligations, when they are subject to the law of a State or territory which has concluded an administrative assistance convention with a view to combating fraud and fiscal evasion with France:

- trusts constituted with the aim of managing pension rights acquired, by virtue of their professional activity, by beneficiaries within the scheme of a pension plan instituted by an undertaking or by a group of undertakings;

- trusts constituted by an undertaking or by a group of undertakings for their own account, and whose constituent does not fall within the definition contained in paragraph 2 of I of article 792-0 bis CGI.

B. Filing obligations contained in the first paragraph of article 1649 AB CGI

Article 1649 AB CGI aforesaid states that the administrator of a trust is required to file a declaration when one of the following criteria are met:
· The constituent is fiscally resident in France under article 4 B CGI ;
· One of the beneficiaries is fiscally resident in France under the same article 4 B CGI;
· One at least of the assets or rights placed in the trust is situated in France under article 750 ter du CGI.

The Administrator of the trust must then file :

- a declaration, for trusts existing on 31st July, 2011, setting out its terms;

- a declaration concerning the constitution of a trust where this takes place after 31st July, 2011, setting out its terms;

- a declaration, for every trust concerned by these filing obligations of any modifications or extinctions taking place after 31st July, 2011.

Insofar as trusts whose constituents and beneficiaries are all non-resident, and whose assets situated in France under article 750 ter CGI are exclusively made up of financial investments under article 885 L of the same code (see below on financial investments), this obligation must be understood in the following manner:

- are subject to the filing requirement, administrators of trusts in which French financial investments have been placed either on their constitution or on later modifications;

- In other cases, administrators of trusts are only subject to this filing obligation when the Constituent or one of the beneficiaries of the trust becomes resident in France under article 4 B CGI.

These provisions apply without prejudicing the provisions of article 792-0 bis CGI concerning transfer tax.

C. Filing obligations contained in the second paragraph of article 1649 AB CGI
Assets, rights and accumulations subject to the annual filing requirements are those which fall within the scope of the sui generis prélèvement on trusts (new art. 990 J CGI). Assets, rights and accumulations placed in a trust are to be declared in France when one of the following criteria is met:
· The constituent is fiscally resident in France under article 4 B CGI;
· One of the beneficiaries is fiscally resident in France under the same article 4 B CGI;
· One at least of the assets or rights placed in the trust is situated in France under article 750 ter du CGI.

More specifically, have to be declared:

- when the constituent or at least one of the beneficiaries is fiscally resident in France, all the assets and rights in the trust situated in France and outside France, even where these are exempt from ISF;

- when the constituent and all of the beneficiaries are non-residents, the assets and rights in the trust are situated in France, including those exempt from ISF, except financial assets as defined at article 885 L CGI.

Under the terms of the administrative doctrine (DB 7 S 346), financial assets under article 885 L aforesaid CGI comprehend the mass of investments made in France by an individual, and of which the products of every type, except capital gains, fall within the category of movable capital income.

This includes call or term deposits in euros or in foreign currency, member's loans to a company or other juridical entity which has its public office or seat of effective administration in France, securities or IOUs of the same type, obligations, shares and « droits sociaux » issued by a company or other juridical entity which has its public office or seat of effective administration in France, Life assurance or capitalisation contracts subscribed with insurance companies established in France.

However, [the following] are not considered financial assets:
- securities and shares representing a holding enabling a certain influence within the company (in practice, are considered to be participating investments, investments representing at least 10 % of the capital of an undertaking) ;

- shares or member's rights held by non-residents in a French or foreign company or juridical, the majority of whose assets comprise immovables or real immovable rights situated on the French territory, and that in proportion to the value of these assets to the total assets of the company (second paragraph of article 885 L CGI) ;

- shares or member's rights held directly or indirectly as to more than 50% by non-residents in juridical persons or organisms owning immovables or real immovable property rights situated in France (second paragraph article 885 L CGI).

As a result, these three types of assets must be declared by the administrator of the trust when the Constituent of the trust and the beneficiaries are all non-residents.

This translation is deliberately literal, and does not take a position on the use of the term "administrateur" to designate a Trustee, as the French administration's evident intention is not simply to catch trusts as may be understood in any one jurisdiction, but to endeavour to give the concept as wide a scope as possible. The conceptual weaknesses and inadequacies in the drafting of article 792-0 bis CGI due to this attempt at an extension of the concept will become more apparent as time goes on.
N.B. This is a circular, constituting administrative doctrine and is not an authoritative statement of the law, merely the administration's position in relation to the legislation, which can therefore be cited as authoritative as against it.
It begs the question as to whether a modification of the composition of a trust fund can be treated as a modification of the terms of a trust. That incoherence in the administration's analysis will be drawn to its attention in due course.