A new position was published by French tax authorities on March 4, 2015, clarifying how trustees should report distributions of income in event-based reports and how annual account statements should be presented on annual reports.
As background, note that French legislation requires two kinds of report to be filed by trustees of trusts having certain connections to France: an annual report and an event-based report. In summary, trusts subject to these reporting requirements are those with a settlor or a beneficiary who is a French resident or which received or held certain French assets. The annual report includes information about the trust (including a detailed statement of assets) as of January 1st of the relevant year and must be accompanied by payment of a special trust tax (the prélèvement sui generis) to the extent that wealth tax due on assets of the trust is not paid by the relevant settlor and/or beneficiaries. The eventbased report provides information on the creation, modification or termination of the trust. Failure to fulfill reporting requirements is subject to a penalty, which is now equal to the greater of €20,000 or 12.5% of trust assets.
The new position published March 4th is an update of the official interpretation regarding wealth tax and reporting obligations for trusts (BOI-PAT-ISF-30- 20-30-20150304 §§400 et seq.). It states among other things that interest and dividends paid on securities held as portfolio investments can be grouped together and reported once each year, in an event-based report to be filed in January of the year following the one during which the distributions were made. Distributions that can be so reported do not include those resulting from sale of securities, for which separate event-based reports should be made within one month of the distribution.
Based on this position, it is clear that French officials are expecting that all distributions from trusts, including routine periodic distributions of income, be the subject of event-based reports. Although we believe that this position can be challenged as being inconsistent with the underlying law, to avoid conflict with the tax authorities it is prudent to comply with position described above.
Also, in the new position French authorities now officially recognize that in the annual report by trustees the detailed statement of assets held by the trust as of January 1st of the relevant year can be set out in an attachment to the official form (provided that the attachment is in French and in a prescribed format).