Business: Law change in France has many professionals as confused as the trust holders
Can I trust my trust?
With minimal guidelines to work with, professionals were left scratching their heads as to how to deal with the issue correctly. Did they have to declare all of the assets held in the trust as detailed within the new Loi de Finances Rectificative pour 2011 (which contains measures that oblige trusts and their trustees to report on the trust's French assets, their French beneficiaries, and/or any French settlers)? And if so, to what extent do they need to go to?
Some say that the French government could request a full professional valuation of the trust each year, something that will be both costly and time consuming to produce, while others interpret this in a less detailed fashion.
The current rules state that for this year's returns, the valuation of the trust (as it stood) on 1st January 2012 must be used when completing an individual's wealth tax return. But it appears that there are conflicting opinions and interpretations of the matter. Caroline Cohen, a London-based tax specialist qualified both in the UK and France, reported in the International Advisor that there is an exception to the filing requirements, as they are understood to exist, "when the trustees hold exclusively French financial investments". In such a case, "the trustees do not need to fulfil the reporting obligations (set out in the new Loi de Finances Rectificative) unless the settler or beneficiary becomes a French tax resident.
Cohen, of the French Law Practice that specialises in cross-border tax and legal matters, added: "this is good news for trustees that have invested in France only in financial assets."
Gerry Brown (the prudential technical manager) reported that this particular area is exceedingly complex, and therefore not easy to address in specific terms. But he is certain that the new rules are likely to affect many people.
"There must be many French resident UK expats who have set up trusts before leaving the UK, or who are French resident beneficiaries of family trusts established by parents or grandparents," he noted. "It is unlikely that these trusts will hold only French assets, so [for them], a reporting requirement will arise."
With all the confusion and rumours rife of a possible six month extension being granted to 15th June deadline, some people have played it safe and reported the existence of the trust as security against an additional tax penalty of up to 40 per cent and a fine of 10,000 euros, or five per cent of the trust value (which ever is the greater) if they had failed to do so.