03 Apr Tax newsletter april 2020
Consequences of the Regulation dated February 12th, 2020 on trustees’ reporting obligations
Regulation 2020-115 of February 12th, 2020 strengthening the national system for combating money laundering and terrorist financing -1- (hereinafter “the Regulation”) amended the reporting obligations of trustees.
The amendments regarding trusts made by the Regulation concern three aspects in particular and have been codified in Section 1649 AB of the French Tax Code (hereinafter “the FTC”).
The purpose of the present memorandum is to provide additional information to our previous memorandum dated January 2019 regarding reporting obligations of trustees -2- (or a similar entity such as a foundation). Of course, this memorandum is not intended to be exhaustive and is not a substitute for legal and tax advice. We remain at your disposal for any question and information you may need.
1. Extension of the scope of trustees’ reporting obligations
As a reminder (before the Regulation came into force), the trustee already had to comply with reporting obligations (and file an annual declaration and/or an event declaration) according to Section 1649 AB of the FTC) when:
– the settlor or at least one of the beneficiaries is domiciled for tax purposes in France; or
– an asset or right held by the trust is located in France; or
– the trustee is domiciled for tax purposes in France.
These reporting obligations are extended by the Regulation. Is also subject to reporting obligations in France “a trustee established or resident outside the European Union when he acquires real estate or enters into a business relationship in France within the meaning of Section 561-2-1 of the French Monetary and Financial Code” (underlined by us).
We await with interest the comments of the French tax authorities on this matter.
So, to give just one example, a trustee established or resident outside the European Union who appoints a lawyer involved in a financial or real estate transaction in France could be considered as entering into a business relationship in France if that business relationship is of a long-term nature.
2. Additional information to be provided in trust declarations
From now on, the trustee must – in addition to the reporting obligations previously required (identity of settlors, trustees and beneficiaries/beneficiaries deemed to be settlors) – report:
– The protector of a trust if any; and
– The “beneficial owner” of a trust, meaning “any other natural person exercising effective control over the trust or performing equivalent or similar functions”.
3. Register of trusts
The Regulation specifies that the information contained in the trust declarations is kept in a register under the responsibility of the Minister in charge of the Budget (the Register of trusts). In this respect, it should be recalled that, following the decision of the French Constitutional Council of October 21st, 2016, the Register of trusts is no longer public and can only be accessed by some competent authorities.
4. Regarding the fines applicable in case of non-compliance with reporting obligations
The Regulation does not modify the fines applicable in the event of failure to comply with the reporting obligations.
In this respect, it should be recalled that failure to comply with the reporting obligations mentioned above is subject, since December 8th, 2013, to an annual fixed fine of €20,000 (Section 1736, IV bis of the FTC, as amended by Section 12 of Law n°2013-1117 of December 6th, 2013). For declarations that had to be filed before December 8th, 2013, the fine was €10,000.
In this context, we remain at your disposal to assist trustees in the preparation and filing with the French tax authorities of event declarations and annual declarations and more generally in determining the tax consequences in France (in terms of wealth tax, real estate wealth tax or IFI, 3% tax and gift and inheritance tax) related to the existence of a trust.
1 As a reminder, the Regulation implemented Directive (EU) 2015/849 of the European Parliament and of the Council of May 20th, 2015 regarding the prevention of the use of the financial system for the purpose of money laundering or terrorist financing, as amended by Directive 2018/843 of the European Parliament and of the Council. The Regulation was published in the Official Journal of February 13th, 2020 and came into force on February 14th, 2020.
2 As defined by Section 792-0 bis of the FTC.