Until now, Article 1736 IV bis of the French Tax Code
(FTC) has imposed very high penalties for trustees who fail to
comply with filing requirements imposed by French tax legislation
applicable to trusts. Following the decision of the Constitutional
Court dated 22 July 2016, French tax authorities have made changes
to the penalties applicable for failure to comply with some
disclosure obligations, in particular the ones applicable to
trustees ("circulaire" of 14 September
As it stands, trustees who have failed to comply with the filing
requirements for trusts can receive a penalty under Article 1736 IV
bis of the FTC. This includes a fine of either €20,000 or
12.5% of the total value of the assets held in trust, whichever is
These fines apply in respect of declarations that should have
been lodged on or after 8 December 2013. For declarations due
before this date, the fine is 5% of the total value of the trust
This penalty applies to all the assets held in trust and arises
each time a failure occurs.
As part of the French tax authorities changes, trustees who have
failed to comply with the filing requirements for trusts will now
receive a fine of either €20,000 or a percentage of the total
value of the assets held in trust, whichever is higher.
The percentage varies depending on the origin of the funds
settled in trust:
If the funds were
"received" through a transfer on death, the rate is
If the funds were placed in trust by
the settlor while he was not a French tax resident, the rate is
If the funds were placed in trust by
the settlor while he was a French tax resident, the rate is
In addition to these penalties, settlors or deemed settlors also
face penalties if they have failed to comply with their personal
wealth tax filing obligations. In the case of voluntary disclosure,
the penalty is 25% or 35% of the tax due.
The penalties applicable for failure to disclose foreign bank
accounts have also been reduced from 5% to 1.5% or 3% depending on
the origin of the funds as mentioned above.
However, the question remains as to whether these new rates will
Considering that the Constitutional Court already considered
that a penalty of 5% was too high outside the context of tax fraud,
we do not see why a penalty of 3.75% or 7.5% would be
The Constitutional Court has sanctioned the application of flat
rate percentage penalties when no fraud can be identified. The
government is therefore expected to propose in the next tax bill
new provisions in respect of penalties to replace the application
of automatic flat rate percentages.
To be continued...
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