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Published on Wednesday 02/11/2016

French decree no. 2016-567 of 10 May 2016 created, via Article 1649 AB of the French Tax Code, a "public register of trusts", with the aim of achieving transparency and combating tax fraud and evasion (particularly by preventing use of dummy corporations). The conditions for implementing the register were stipulated by an order of 21 June 2016. An interim order of the Council of State and a recent decision by the Constitutional Council have put an end to this system before it became fully operational.


The legislation sought to compile a register of trusts when one of the elements of the common law mechanism was in France, i.e.:

- the parties if at least one of them (trustee, settlor or beneficiary) had tax residency in France;

- the object of the trust if it included an asset or right located in France.


The public register of trusts was supposed to contain the following information:

- name and address of the trust;

- date of establishment and end date of the trust;

- date and nature of the trust declaration mentioned in Article 1649 AB of the French Tax Code;

- and information identifying the three parties to the trust (settlor, beneficiary and trustee).  


The register was supposed to go online on 5 July 2016. By an order of 22 July, the Council of State suspended implementation of the decree (and thus the creation of the register), based on the risks of infringing the privacy of the applicant given that the register could allow public access to personal data (such as testamentary intentions).


The Constitutional Council to which a QPC (question on the conformity of a law with the Constitution) had been submitted at the same time, handed down a decision on 21 October 2016, considering that the public register of trusts as planned by the legislative provisions was unconstitutional. Although the register pursues the constitutional objective of fighting tax fraud and evasion, the lack of limitation on the group of people who would have access to it "restricts [the right to privacy] in a way that is manifestly disproportionate to the objective pursued". As a result, the decree was immediately repealed.


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Tags : Trust Taxation

Published on Wednesday 12/10/2016

In a ruling of 19 May 2016 (no. 14VE01214), the Administrative Court of Appeal of Versailles judged that a trust incorporated under British law could be likened to a French public-interest foundation, thereby exempting it from withholding tax on distributed dividends of French origin in respect of income declared for tax years 2010 and 2011.

A British charity trust was in a dispute with the tax authorities in connection with the trust's characterization in French law. The tax authorities disputed the trust's totally altruistic activity, more particularly with respect to the number of paid directors and the amount of their compensation package.

It was therefore a matter of deciding whether for tax purposes the trust in question should be likened to:

- a non-profit-making organization liable for 15% French corporation tax on dividends received, pursuant to article 119 bis, 2 of the general tax code and article 187, 2nd subsection of the 1st indent of the same code (in the version in force from 1st January 2010);

- or a French public-interest foundation exempted from corporation tax in pursuance of article 206, 5 of the general tax code.

In its ruling the administrative court of appeal firstly accepts the altruistic nature of the trust's management, comparing it to a French non-profit-making organization. It justifies its decision by applying prior legal precedents of the Council of State for the period pre-dating 1st January 2010 (Council of State rulings of 22 May 2015, nos. 369819 and 369820), which considered that the specific activity of the trust and the difficult duties of its directors warranted a higher threshold for receiving their remuneration, which in the end did not seem excessive. However, this characterization did not completely exempt the trust from taxation. Secondly, the appeal court then attempts to liken the trust to a French state-approved foundation. To that end, it again bases its arguments on the aforementioned legal precedents, noting its position with regard to the law of its state of residence (British law) to ascertain whether it met the conditions of domestic law for being characterized as a state-approved organization, namely: the irrevocability of allocation of properties, their vesting in the event of dissolution, accounting obligations and financial accountability and the power of the British supervisory authority (article 18 of the law of 23 July 1987).

After making a comparison in the particular case, in the light of these four criteria, the court of appeal confirms that in this instance the trust can be likened to a French state-approved foundation due to the similarities between the criteria of domestic law and those of British law.


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Tags : International tax law Trust

Published on Friday 03/06/2016

Decree no. 2016-567 of 10 May 2016 is designed to promote transparency, and through Article 1649 AB of the General Tax Code, establishes a "public register of trusts".


The objective pursued by the text is the registration of trusts insofar as one of the components of the common law mechanism is in France:

- if it concerns parties, it is the tax domicile in France that will be taken into account;

- if it concerns the purpose of the trust, it is the lex situs (location) that will establish a connection with France.



The information contained in the public register of trusts will be as follows:

- name and address of the trust;

- date of establishment and termination of the trust;

- date and nature of trust registration as indicated in Article 1649 AB of the General Tax Code;

- and the identity of the three parties to the trust (establishment, beneficiary and administrator or trustee).  



The register will be available on the internet from 30 June 2016 and will identify beneficiaries and companies comprising the trusts. This should put an end to the use of shell companies for the purposes of tax evasion. 


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Published on Monday 25/04/2016

According to Article 4 A paragraph 2 of the General Tax Code (GTC), nonresidents are liable for income tax on their income from French sources, subject to a sliding scale and the household income splitting system.


Article 197 A of GTC specifies that for nonresidents, income tax cannot be less than 20% of the net taxable income from French sources (or less than 14.4% of the net taxable income from French sources in French overseas departments).

However, if the foreign taxpayer can show evidence that an average tax rate in France of less than 20% would be assessed on all of his income from French and foreign sources, it is this average rate that will be applied to calculate the tax on the income from French sources only.


To take advantage of this tax rate of less than 20%, nonresidents must provide justification after receipt of the tax notice; this involves a lengthy and complex process.


Article 120 of the amending finance law for 2016 n°2015-1785 makes two modifications to Article 197 A of GTC:


- on the one hand, nonresidents have the option to make a statement certifying the amount and the nature of their worldwide income, pending production of the corresponding supporting documents. This declaration permits immediate application of the tax rate of less than 20% for income from French sources;


- on the other hand, only nonresidents settled in a European Union member State or in a state having entered into a tax treaty with France benefit from this article.


This measure will take effect for the taxation of 2015 income to be reported in 2016.


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Tags : International tax law

Published on Friday 15/04/2016

Article 164 of the General Tax Code (GTC) stipulated that nonresidents who owned one or more homes in France were subject to income tax on a flat-rate basis of 3 times their real rental value, unless the income they received from French sources was below the amount of this basis, in which case the amount of this income served as a basis for the tax.


Furthermore, this tax could be excluded in the event of :

- the conclusion of a tax convention avoiding double taxation and containing administrative assistance between France and the State of the nonresident ;

-  taxation greater than or equal to two-thirds of the tax that French nationals would have to bear in France, if they had their fiscal residence in France ;

- expatriation of French nationals due to job-related reasons when they had their residence in France for at least 4 years preceding their transfer.


Article 21 of the amending finance law for 2015 n°2015-1786 repeals the provisions of Article 164 C. This reform is in response to the decision of the Court of Justice which had considered that this article violated the principle of free movement of capital in the European Union (case 181/12 date 17/10/2013). This decision has been applied by the French Council of State (CE 26/12/013 n°360488 and CE 11/04/2014 n°332885).

Henceforth, nonresidents are subject to taxation in France exclusively on the basis of their income from French sources according to Article 4 A, paragraph 2 of the GTC.


This repeal will be effective with the taxation of 2015 income.



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Tags : International tax law

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The interdisciplinary expertise of the Selarl Bruno Bedaride, notaire in Paris covers the following areas: corporate law, international contracts law, legal and tax advice, advice for international transmission, real estate law, family office, real estate and company finance law. We offer more particularly our services to non residents or foreign company who wish to invest, move or create a business in France.