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New French reporting rules for trusts in force

The new French reporting rules for trusts came into force on September 15 2012. The scope of the new reporting requirements is very broad and, as things stand, EBTs are subject to these reporting requirements if they include French tax resident employees within the class of beneficiaries or hold French assets. The initial report had to be made no later than September 30 2012. The French tax authorities are aware that the new reporting requirements may give rise to practical difficulties for EBTs and they have been considering for some months whether to exempt EBTs from the reporting requirements. The French have said informally that the current draft of their long-awaited official guidelines included an exemption for employee trusts, but they have not confirmed when the guidelines would be published or the precise scope of the exemption. 

Many EBTs will include French tax resident employees within the class of beneficiaries and may be caught by the new regime, even if the company that established the EBT is not a French tax resident company and the EBT does not hold any French assets. The reporting requirements will in principle apply to the trust of a UK SIP if the settlor is a French tax resident company.

The requirements are to report the fair market value as at January 1 2012 of the assets or rights held by the trust.  The fair market value of the assets or rights held by the trust as at January 1 will have to be disclosed no later than 15 June of that year.  A report must also be made of the setting up, termination or modification of a trust (for which the deadline is December 31 2012). 

As from January 2013, these events will have to be disclosed within one month.  For these purposes, ‘modification of the trust’ is extremely wide and includes any change in its terms, operation, settlor, class of beneficiaries, trustee or the transfer or removal of assets or rights.

This broad definition of modification’ appears to require reports to be made whenever shares or assets are moved into or out of an EBT.  

For both reporting requirements, tax residence of beneficiaries and/or assets is assessed each year on January 1.  A failure by the trustees to comply with the reporting requirements triggers a penalty of €10,000 or, if higher, five percent of the value of all of the assets held in the trust. The settlor and beneficiaries are jointly liable with the trustee for payment of the penalty. 

An EBT which has been settled by a company or group of companies for the benefit of their employees and which acts merely as a “warehouse” for the holding of shares may be outside the scope of these new reporting requirements.  However, an EBT is likely to be subject to the new rules if a beneficiary could in any way be said to act as a “co-settlor” of the trust.  The French authorities are expected to interpret this concept broadly and may take the view that an employee is an “economic settlor” if the employee makes any direct contribution to the trust (for example, by the payment of an option exercise price) or even by contributing indirectly (for example, by waiving a right to receive a benefit in order to become a beneficiary of the trust).