Trust filing duties under the French Tax Code

Although an entity is not identified as a "trust" in its country of establishment, it could fall within the scope of the filing duty in France in relation to trusts as long as it meets the French Tax Code (hereinafter "FTC") definition of a trust, i.e. the legal relationship created in a foreign State by a settlor - during his lifetime or on death - seeking to put under control of a trustee (or "administrator") assets or rights in the interests of either one - or more - beneficiaries or one special purpose[1].

Thus, if you are a trustee (called "administrator" by the law) according to French law, you have a disclosure obligation to the French Tax Administration (hereinafter "FTA") that involves two declarations:

• an annual declaration (2181-TRUST 2 Form) including an inventory of the net value of the assets and rights held by the trust;
• an event-triggered declaration (2181-TRUST 1 Form) filed upon the occurrence of special events related to a trust (constitution, modification and extinction).

What is the scope of the filing obligation?

Trustees must complete the declaration in the following cases[2]:

• The Settlor is a French resident for tax purposes; or
• At least one beneficiary is a French resident for tax purposes; or
• At least one of the assets or rights is located in France; or
• The trustee/administrator is a French resident for tax purposes.

Thus, the filing duty has a very wide scope, every France-linked trust – or entity regarded as a trust under French law – should file those declarations.

However, FTA expressly excluded from the scope of this definition certain entities such as pension-related trust or Unit Trusts subject to the provisions of the Directive 2009/65/CE (UCITS IV) or equivalent structures outside of the European Union) under certain conditions.

Who is responsible for filing the declarations?

Every trustee/administrator must complete both declarations, regardless of its tax residency.

What must be declared?

► Event-triggered declaration

This declaration must be completed in the following three cases:

• Constitution of the trust: the trustee must declare the content of the trust deed and special provisions if any;
• Modification of the trust: the trustee must declare any change of the trust deed, among the trust assets or rights or within the trust beneficiaries or settlors[3] ;
• Extinction of the trust: the transmission of the assets and rights to the beneficiaries should also be declared by the trustee.

► Annual declaration

If the settlor or one of the beneficiaries of the trust is French resident, the trustee must declare each year an inventory – including net value – of the assets and rights of the trust along with the worldwide capitalised income.

If none of the settlors and beneficiaries of the trust is French resident, the trustee must declare an inventory – including net value – of the assets and rights of the trust along with the French located capitalised income.

Exemptions are available but they must be analysed on the ground of the French tax administration's guidelines on a case-by-case basis.

When is the filing deadline?

The following deadlines apply to the filing duties:

15th June of each year for the annual declaration if the settlor is a French tax resident. It can be completed until the 31st August otherwise (annual disclosure or form 2181-TRUST 2); and

Within a month following the occurrence of the particular event (event-triggered declaration or form 2181-TRUST 1).

What sanctions may apply?

Failing to comply with these requirements is sanctioned by a penalty of € 20,000 or - if higher - 12.5% of the net value of all assets held via the trust.

The penalties are cumulative, i.e. failure to file the same form two years in a row can be sanctioned by a double penalty.

Moreover, a 1.5% specific tax based on the market value of the assets, rights and capitalized incomes held by the trust on 1st January of the considered year is also applied if:

• These assets, rights or capitalized incomes have not been regularly disclosed to the FTA in the settlor's (or deemed settlor’s) wealth tax return (2725 Form) as they should; or if
• The annual declaration (2181-TRUST 2) has not been filed even though the settlor (or the deemed settlor) was not liable to French wealth tax.

The trustees are primarily liable for the payment of this specific tax, but the settlor (and the deemed settlor eventually) are jointly and severally liable – unless stated otherwise in the trust deed.

Please note that failing to comply with the filing duties can trigger tax reassessment by the FTA within 10 years, including late interest at the rate of 4.8% per year[4].

For further information or detail, do not hesitate to contact Eglantine Lioret (+33 1 53 57 78 48) or Valérie Farez (+33 1 53 57 74 11) in our Paris office

[1] Article 792-0 bis of the FTC

[2] Considering the situation on January, 1st of the declaration year

[3] Purchase and sale of shares held by the trust is not considered as a modification of the trust if the capital gain is still held by the trust or reinvested in shares.

[4] Article 1727 III of the FTC