French Levy declaration by Trustees otherwise due by 15th June? (Edited on 12th June, 2018)

The French administration may have bitten off a good deal more than their computer system can chew in the modification of the tax basis from the ISF, which comprised both movable and immovable assets to the new Impôt sur la Fortune immobilère.

To put one area of possible concern to one side, the declaration as to existence, modification or termination of a deemed trust interest or trust, Cerfa 21081 Trust1 and its parent articles 1649AB and Article 344 G sexies remain in force and have not been amended, as these are aimed mostly at deemed succession and gift issues.

Trustees and the 1.5% levy:

It is regrettable that there has been no attempt made by the French Finance Ministry to address the mismatching of the 2017 millésime Cerfa 2181 Trusts2 with the new IFI.

What is clear is that the French “definition” of a trust has now parted ways with the English definition, and what is more the Hague Convention upon which it was based.

The disease has spread to French lax lawyers who, following an idiotic statement in a commentary by a conseiller to the Conseil Constitutionnel are now referring to an imaginary “contrat de trust” rather than to a convention de propriété, The legal and equitable principle that no trustee can charge a fee unless expressly permitted by the Trust Deed appears to have been wrapped up in a neo-cartesian fallacy. It seems that there is a creeping academic American influence at work as a Professor at Yale has advanced the thesis that a trust, at least the 50 odd american versions, can be analysed in some manner as a three party contract. The notion of a “complex” discretionary trust and the fact that a trust must be capable of enforcement appears to have eluded that learned analysis.

Those advising beneficiaries and other individuals with French immovable assets held through intermediate entities will be aware that with the change has come a set of valuation issues which may arise in relation to the indisponibilité or lack of uninhibited disposal of such indirectly held immovable assets, the issues of minority interests, loan deductions and other similar “movable” effects on a full market valuation of the underlying asset. This is not merely limited to the articles expressly addressing valuations of professional asset in the texts.

It is against this background that the Trustee annual declaration defined at articles 990J, 1649AB and in particular, the unmodified article 344 G septies are now a cause for concern. There has been no attempt made to redraft the forms which appeared to be required in place of the previous Cerfa 2181 Trusts2 now the ISF has been struck from the Code général des impôts.

However, the position as to that limbo has to be resolved by reference to the text of article 344 G septies Annexe II CGI, which remains in force and was adjusted slightly in 2018.

As it is possible that any French resident beneficiary or bénéficiaire réputé constituant will be charged to the levy at the full rate of 1.5% owing to a lack of declaration by 15th June from the foreign Trustees, the amended 990J which contains a new charging mechanism holding these persons liable to the levy in the case of a declarative default by their trustees need particular attention.

The issue will not arise where the person concerned has included the trust assets in their own IFI declaration, provided that the “non bis in idem” decision by the French Conseil Constitutionnel over an “interest” in discretionary trust being declared a a nominal amount remains applicable within the IFI, which logically it should.

In the intervening period, compliant French residents and non-residents will already have taken advice on valuations through intermediate holding entities and will have filed as appropriate their 2042-IFIs and annexes.
This leaves their trustees with the valuations and identification of the assets which they hold, and which have already been declared by their Constituants or deemed Constituants, or which are under the €1.3 million threshold of each individual concerned, Issues of loan finance and other like allowances will already affected whether these items will be carried to the French administration’s system.

Those trustees who have opted to pay the prélèvement of 1.5% - identical to the full IFI rate - so as to release their beneficiaries will therefore find themselves in a position where they might wish to attempt to reduce the basis by reference to the IFI allowances. Care is needed here, as the declaration replacing the 2181 Trust2 has yet to be published, and it is possible that the administration may attempt to forestall such opportunities arising under the new format of the IFI tax base in the new declaration and the notices which will follow on in due course by insisting on a separate valuation method so as to extract the full market value and thus undermine any valuation placed on the assets by their beneficiaries’ advisors.

I would suggest that the time is ripe for asserting that English trusts of land, as immovable rights per se under the lex situs, are not caught by the French trust definition as a result of the prior abolition of the doctrine of conversion in 1996, and allow the French resident taxpayer to declare their interest as an immovable asset with suitable allowances for non-availability. If advice is needed on how to assert this, and thus remove any registration requirement that might rear its ugly head in France, please contact me.

Whilst the article defining the content of the declaration has been changed to accommodate the IFI’s tax base to immovable property, the only Cerfa 2181 Trusts2 available on the Website is the 2017 Millésime which is structured to deal with two categories of wealth: movable and immovable.

As at 11th June, i.e. 3 full working days before the filing date of midnight 15th June, it seems therefore that, given article 344 septies of Annexe III CGI, in the absence of any express derogation or even extension of time, as has been the case for the individual IFI returns, in order to address the separate levy or prélèvement, which is set out in a different section of the tax code, trustees will need to file on a 2017 form as the annual filing requirement still stands on the statute.

Whilst is is unlikely that any trustees will hold land directly, certainly not French, they will not be able to file easily using the 6B or 7B sections of the form, which are those for movable assets.

I stress there is no declarative opt out under article 344 septies. It is regrettable that there has been no attempt made by the French Finance Ministry to address the mismatching of the 2017 millésime Cerfa 2181 Trusts2 with the new IFI or take the risk of not declaring, on the basis that there is no declaration available, for the prélèvement as it stands.

The issue is that whilst shares or interests in corporates owning immovable are declarable, the overseas trustee could be pardoned for not knowing, in the absence of any administrative guidance or instruction as to where to put the asset. If it is treated as being an immovable, then how does one address the issue of allowable loans, other than declaring a net value, which is not in fact permitted by the form itself or does one treat the shares as being shares and declare them either in section 6 B or section 7 B? The response to that has to be that the declaration is of the market value of the asset, be it movable in the case of shares, or immovable, and the capacity of the individual paying the IFI to declare loans on their own return, due now by 15th June. In other declarable on 6B or 7B of the form.

Whilst the Conseil Constitutionnel has upheld the principle of non bis in idem in a decision last year, the tax administration has changed the persons liable for the prélèvement of 1.5% from the trustee to the constituant or deemed constituant of the trust. It is possible that this change will be used to assess the prélèvement upon French residents, despite the ruling, whee the trustees declaration is challenged.
The compliant approach has to be to declare the corporately held assets as movables in 6B, if you are paying the prélèvement, or 7B if the French resident is either exempt or declaring the asset for IFI, and then carrying the French cumulated net asset value for those shares to the column chargeable.

Here there is a further obligation on the trustee to certify the amount and characteristics of loans concerning the immovable property to the French or foreign IFI taxpayer.
The allowablility of loans under the IFI régime is certainly wider than under the old ISF.
Insofar as corporate intermediaries are concerned, which have financed the acquisition or other aspects of the immovable through loans, trustees are advised that there is a specific mechanism for determining the amount of the value of the shares to declare which has been borrowed from the 3% tax on immovable property holding companies.

There is no ability to declare a corporate holding of foreign or French immovable property, other than in the movables section B of either sections 7 or 6 on the 2181 Trusts2…

Peter Harris

Edited and removed on 12th June, 2018

Edited and removed on 12th June, 2018