The French tax authorities have issued guidelines clarifying the application of tax law in respect to trusts. The guidelines are broad and general in their terms and have added insight to the interpretation of the law with respect to distribution and termination of trusts.
The guidelines define a Trust as follows: “the legal relationships created under the law of a State other than France by a person acting as a settlor, inter vivos or on death, which place assets and legal rights under the control of an administrator for the benefit of one or more beneficiaries or for a specific purpose.”
The term of settlor and deemed settlor (or constituant) is defined as the individual who has set up the Trust or who has contributed assets to the trust. Unfortunately, the guidelines do not define “administrator” who would be responsible for filing, paying taxes and penalties.
The guidelines state that beneficiaries considered as deemed settlors will have assets divided between them either equally or per the terms of the trust, for the purposes of wealth tax. Additionally, a new tax on trustees is due when the settlor or deemed settlor has not paid the wealth tax. This is called the sui generis tax.
The guidelines gives clarification on inheritance tax, gift tax and the application of double estate tax treaties. Three scenarios are specified in which the new tax is applicable on the death of a settlor. Additionally, the guidelines state situations wherein the gift tax or succession duties do or do not apply.
The deadline for the declaration of assets held in trust has been confirmed as June 15 for French tax resident settlors. For non-French tax residents, the deadline is August 31. Filing requirements apply to trustees of trusts with French connections. Trustees of “pension trusts” are not subject to filing requirements.
Because trusts are alien to French law, the guidelines are still lacking. Most experts believe that further clarification will come when the law and guidelines are tested in the French courts as cases arise.
Source: www.lg-legal.com
