Introduction

On October 21, 2016, the Constitutional Court ruled that the public registry created under the Governmental Decree of May 10, 2016 violated rights to privacy.

An American residing in Paris brought the issue before the Constitutional Court arguing that the trust information required to be disclosed in the registry available to the public violated rights to privacy. As a result of the decision, the public registry was withdrawn. However, this does not annul trust reporting obligations otherwise established by law, including:
- an « event » report with respect to the creation, modification or termination of a trust; and
- the annual report of the value of the trust.

Factual background

Under the May 2016 decree, a public registry was established giving public access to reported trusts including the name of the trustee, the settlor, the names of beneficiaries, and the date of creation of the trust.
The claimant maintained that these dispositions violated her rights to privacy especially when the dispositions give free access to the public and without any framework with respect to the use of confidential information relating to the trust. The claimant also maintained that the dispositions violated the principle of equality under the law.
The Constitutional Court stated that under the right to privacy established under the Declaration of Human Rights of 1789, all collection, recording, conservation, consultation and communication of personal information must be justified by a public interest implemented with measures not disproportionate with respect to the stated objective.
The public trust registry gathers information with respect to all trusts in which the trustee, settlor or at least one of the beneficiaries is a resident of France or in which assets are situated in France. For each trust, the registry includes the date of creation of the trust as well as the names of the trustee, settlor and beneficiaries. Article 1649AB of the French tax code set forth the principle of a decree to detail access to the registry.
The Court first highlighted the context: by favoring a transparent approach to trusts, the legislature intended to further a legitimate constitutional objective of avoiding the fraudulent use of trusts for tax evasion and money laundering.
However, the listing, in a registry available to the public, of the names of the settlor, the beneficiaries and the trustee provides information on how an individual plans to dispose of his wealth. The court concluded that providing unrestricted access to this information results in a violation of one’s right to privacy. The legislation does not provide for the qualification or purpose justifying consultation of the registry and does not limit the circle of people having access to the information. The contested dispositions are disproportionate infringement on the right to privacy when weighed against the purpose of the law. As a result, without examining the other bases upon which the law was contested, the disposition of article 1649AB of the French tax code relating to the public registry was declared unconstitutional and with immediate effect.

Conclusion and perspectives

This decision by the Constitutional Court is a measured response to both public outcry and the tax administration’s desire to ensure tax compliance. This is especially the case for trusts where cases of abuse may overshadow legal tax planning and family planning including the avoidance of probate. In an 18 page commentary also published by the Constitutional court, the Court mentioned how legislators have cited how trusts give rise to phenomenal, massive tax evasion citing Transparency International France: « 80% of illegal global flows of funds linked to tax evasion transit through trusts ». They then mention the case of Erika, leased through a Bahamian company belonging to a trust managed through a Panamanian law firm.
These extreme cases of abuse have underpinned French trust legislation. While the decision is welcomed for taking a measured approach by protecting the right to privacy, one should recall that the objections expressed by the court relate to unstructured access by the public to private information. It does not relieve parties from the « event » or « annual » reporting obligations that continue to exist. As a reminder, while the penalties may be contested, failure to complete these obligations may lead to penalties of €20,000 or, if higher, a value equal to 12.5% of the assets in trust including reinvested earnings.