French Tax Legislation Applicable To Trusts: New Penalties Apply To The Trustees For Failure To Comply With The Reporting Obligations

Author:Mr Frederic Mege
Profession:Gowling WLG

Until now, Article 1736 IV bis of the French Tax Code (FTC) has imposed very high penalties for trustees who fail to comply with filing requirements imposed by French tax legislation applicable to trusts.

Following a decision of the Constitutional Court dated 22 July 2016, the French tax authorities made changes to the penalties applicable for failure to comply with some disclosure obligations, in particular the ones applicable to trustees ("circulaire" of 14 September 2016). A tax bill of 29 December 2016 profoundly changed the regime of penalties applicable as from 1 January 2017 and, in a recent decision of 16 March 2017, the Constitutional Court confirmed that the penalties which were imposed in the past were unconstitutional (CC Decision 2016-618 QPC of 16 March 2017).

New penalties

As of 1 January 2017, no flat rate penalty (5% or 12.5%) applies to the trust assets. A €20,000 fine might apply instead.

In addition, the settlor (or deemed settlors) and/or the beneficiaries face a penalty of 80% of the unpaid wealth tax or income tax due to their failure to disclose their assets or income from the trust.

Past penalties

The penalties under Article 1736 IV bis of the FTC, for trustees who have failed to comply with the filing requirements for trusts, include a fine of either €20,000 or 12.5% of the total value of the assets held in trust, whichever is higher.

These fines apply in respect of declarations that should have been lodged on or after 6 December 2013. For declarations due before this date, the fine is 5% of the total value of the trust assets.

This penalty applies to all the assets held in trust and arises each time a failure occurs.

A similar penalty of 5% existed for French tax residents in relation to failure to...

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