Some media outlets are referring to a new change in the French law on trusts as a “French mini-FATCA”, a term likening the move to a Gallic version of onerous US tax compliance legislation being imposed on expat Americans.

At the end of December last year, the French tax authorities issued guidance on how a new law on trusts, which came into law on 31 July 2011, will operate. The law concerns trusts that hold French assets or that have French beneficiaries or settlors.

A concern that has arisen centres on the level of disclosure and reporting that will be required, particularly in those cases where a beneficiary or settlor lives outside France. 

As explained by firms such as PKF in Jersey and international law firm Baker & McKenzie, new guidance requests reporting of all trusts in existence as of 31 July last year: the original rules had said the reference date for tax filing was 1 January this year.

As explained by PKF’s French tax advisor Virginie Deflassiuex, associate director, PKF (Channel Islands), where parties to a trust “are not resident in France, the structure still needs to be declared if it holds French assets”.

The new guidance, or rescrit, offers a more precise definition of what is meant by “French assets” for reporting purposes. For example, French financial assets which are normally exempt in the hands of non-French residents for wealth tax purposes do not trigger any reporting obligations on the part of the trustees. However, trusts with shareholdings of more than 10 per cent in a French company, or shares in a French or foreign company holding French property do need to be reported.

“Certain trusts established by corporate settlors may escape the new disclosure rules if they are for the benefit of a corporate structure or if they provide retirement arrangements, but subject to restrictive conditions,” PKF said in its note published at the start of January.

However, PKF warned: “The rescrit may create some degree of concern, depending on the nature and objectives of the original trust arrangements, the assets held and the level of restructuring undertaken prior to 1 January 2012.”

The firm stressed that some fears about the impact of this law need to be put into perspective.   

“The main effect of the French law on trusts is to force assets back into the taxable wealth of a defined party to the arrangement.  Most trust terminations undertaken since last July will have probably formalised such ownership and this, in full knowledge of the future tax impact. Some restructuring will also eliminate the reporting from 2013 onward. We are still awaiting the décrêt to confirm exact reporting requirements, and the filing date,” it said.