As you may know, the French tax authorities are implementing the July 29, 2011 law concerning persons involved with common law trusts. Many of my clients are so involved, and we have been working steadily to meet the truncated deadlines for reporting any such interest. The penalty for not doing so in a timely fashion is the higher of €10,000 or 5% of the trust corpus on January 1st of a given year, the first year being 2012. There may also be an additional charge of .05% of assets unreported in the French wealth tax (ISF) return.
The folllowing is a Memo I sent out to my clients today, as a supplement to prior work we have been doing to meet the deadline. If you have questions, please contact me at firstname.lastname@example.org.
Follow-Up Concerning The September 30th Trust Filing (France)
Intro – There are some open questions, especially for those of you whose trust provisions are fairly complicated and/or there are multiple beneficiaries involved.
Referring to the official Form issued by the Fisc on September 15th, which I sent you earlier this week, there is also the question of how to answer question 5 (“Continu des termes du trust”), which calls for a description of how the administrative provisions of the trust work; and questions 6 and/or 7 of that Form.
Let me go through the Form in the order presented in the Form itself.
1. You have already provided the name of the trust in the first Report that you mailed before September 15th.
2. You have already provided the name of the trustee (“administrateur”) of the trust.
3. You have already provided the name of the settlor of the trust, or, if the settlor or settlors is/are deceased, then the current beneficiary or beneficiaries (who are deemed under the new law to be settlor(s). However, what has not yet been provided is the date and place of birth and, in the applicable case, the date and place of death, of the settlor(s).
4. You have already provided the name and address of all beneficiaries. Even if the beneficiary is not a current beneficiary, a close reading of the law indicates that that person should be named. I think contingent charitable beneficiaries may be omitted this time around. However, what has not yet been provided are (a) maiden name, (b) date and place of birth, and if applicable (c) date and place of death.
5. You have NOT yet providedthe terms of the trust (“continu des termes du trust”). By “continu des termes du trust”, is meant any or all of the following: (a) Whether the trust is revocable or irrevocable. (b) Whether the trustee has discretion about when income and/or principal must or may be distributed to a beneficiary. (c) In the case of a sole beneficiary, what happens when that beneficiary does, i.e., who is the successor and what terms apply in that case – e.g., the trust terminates, the assets stay in trust until a certain age, etc. (d) Whether a beneficiary has a power of appointment and a description of that power – e.g., to whom? to what class? any limitations on the power, etc. (e) Under what circumstances a beneficiary will come into a portion or the entirety of his or her share. (f) If there are more than one beneficiary, how are the trust assets and income divided amongst them? Note, the instructions to this form invite, but do not insist, that you join a copy of the trust to the form. IF YOU ARE NOT ABLE TO DO THIS YOURSELF, YOU MAY NEED MY ASSISTANCE. IF I DO NOT ALREADY HAVE A COPY OF THE TRUST, PLEASE EMAIL IT TO ME AT ONCE. In the interest of time, my suggestion is that the response to item 5 of the Form be submitted in English, and then waiting until the fisc asks for a translation. There seems no other way to meet the absurdly short deadline.
Items 6 and 7 divide the trust assets into two categories: Item 6 lists those of your trust assets which should have been declared but were not declared in your ISF return on June 15th. The total of those assets not declared in your ISF return for 2012 are subject to an additional tax of 0.5%. If this does not apply to you, (i.e., those assets were indeed included in your ISF return, or else you were not liable to file a an ISF return because of its total value including the trust assets were less than 1.3m euros on January 1, 2012. Item 7 is an identical breakdown of assets but relates to those already reported in your ISF return. Here is the breakdown (either for purposes of Items 6 or in 7 — possibly some assets in one or the other depending on whether a particular asset that should have been disclosed in your ISF return was not disclosed).
Both Items 06 and 7 are divided into A (real estate) and B (personal property, stocks, bonds and similar investment property, and all other assets). You have already provided a breakdown of the contents of the trust, so listing them in 6 or 7 would depend on whether any of those assets should have been but were not included in your 2012 ISF return. Although the January 1st value should (according to the Form) be expressed in euros, in some cases the values already submitted were in U.S. dollars. I think this should do for now, although you may at your discretion, make the conversion on the Report already filed. Note that if any of the above were not included in your wealth tax return (if one was due on June 15th), you would be subject to an added tax of 0.5% of the total value of those assets. Thus, a separate calculation must be made.
The Form (or supplemental report on plain paper) should be dated and signed. The Report has a place for this at the bottom of page 5.
For those of you who will complete this task yourself, my suggestion for how to comply with the law and how to avoid confusion chez le fisc is as follow:
a) Add the additional information required to the official Form or else do so on plain white paper (this is allowed only for 2012).
b) Attach the Form or the plain white paper containing the additional information to a copy of the Report you have already filed (i.e., prior to Sept. 15).
c) Add a letter signed by the Trustee to the effect that the information contained in the enclosed Form is supplementary to the Report already filed, copy attached.
d) Mail LRAR or by courrier (return receipt) to the same address as you mailed the original Report.
One or two of indicate that your Trustee was unwilling or unable to sign the original Report. In such case I advised that the current beneficiary sign in the Trustee’s place. The same advice would apply this time around. Note though, the law does call for signature by the Trustee, so it is unknown at this time what the consequences of the absence of that person’s or entity’s signature will be.
THE FOLLOWING APPLIES ONLY TO THOSE OF YOU WHO CREATED, MODIFIED OR TERMINATED A TRUST ON OR AFTER 31 JULY 2011. If such creation, modification or termination occurred between July 31, 2011 and September 15, 2012, the relevant declaration must be made on or before December 31, 2012. As this gives us some breathing room, I will address the issues related to that form in the coming weeks.