Significant decision of the Cour de Cassation on the 3% tax on immovable property entities, and the implications for trusts

Well, it had to happen.

I am assuming a degree of familiarity with the French 3% tax on entities owning French immovable property.

The case concerned a corporate ownership structure of French property, but the main issue was that there was an individual behind it.

That individual was declared by the structure as holding the last set of shares.

The administration lost at the level of the Chambéry court and appealed. I stress here that the real law was argued in front of the Chambéry Court, but the Cour de cassation did not feel it appropriate to break the judgment and send it back to be re-adjudicated.

The administration contested the exemption from the tax on the basis that the individual was simply the ayant droit of a Luxembourg fiducie and could not be argued to be the owner, thus enabling it to tax the entire structure on the basis of a miss-declaration. The administration argued that his rights were no more than those of a propriétaire apparente, which also enabled a degree of administrative misfeasance in other areas. If you like, doubling up the argument as to structured dissimulation and missdeclaration. That signifies huge rsk in the area of CRS and FATCA, where administrations may seek to deliberately “reset” information exchanged on similar bases. For example, how many differn,t account holders are there in a trust under CRS? Trustses, Settloirs, Protectors, and beneficiaries to name but a few.

The Cour de Cassation had none of it and held that the ayant droit was the direct owner of the shares in an immovable property holding company, in effect that the contrat fiduciaire was not a further legal entity as aimed at by the legislation.

" la cour d’appel, qui a estimé qu’un bénéficiaire économique pouvait être assimilé à un détenteur d’actions, a procédé à la recherche prétendument omise et a légalement justifié sa décision ;"

Anyone wishing advice on how to use this in the trust context, might wish to contact me. Whilst this is a development, it needs ro be employed advisedly, as there will be ramifications elsewhere.

Whilst the term bénéficiaire is used in article 792-0 bis I CGI, the French administration have made the fatal error of assuming that they can employ the Hague Convention 1984 to create a deemed contract, which then enabled them to argue that an entity has been created. There is no difference here, barring administrative miss-interpretation, between a contrat fiduciaire and a trust entitlement. I reiterate my prior comments as to the deliberate misinformation sworn on oath to the effect that a trust was a “contrat” before the French Parliamentary Committee. Whether it be a creature of property law, as it is, or conceived as some wierd creation of the civil servant’s mind slouching towards some international organisation to be born, the effect of such classification here is of no relevance to the issue of legal entity, as proferred by the Chambéry Court.

As I said, this is a watershed decision, and it is clear that the French attempts to govern international private law by a deeming process is simply not what their domestic law and legal system allows.

The issue is that the appeals against ill-conceived, ill-drafted and unconstitutional “laws” take time to render these innoccuous.

There will be repercussions for CRS and FATCA in matters of holding real property, which as immovables, remain outside the remit of these new châteaux de cartes.

Some law needs to be applied here, rather than falling for the deeming exercises currently being propagated as “administrative” law in the glass houses of administrative convenience.

Peter Harris