In more detail
The question raised concerned an inter vivos gift made abroad within a family, one member of which was a French tax resident. In this case, the gift was not subject to taxation as it was below the taxable threshold. The other family members, who had never been French tax residents and had no plans to transfer their tax residency to France at the time of the gift, did not declare the gift in France either. Several years later, another family member settled in France and was penalised for failing to declare this gift. The question was whether, in such a situation, the French tax authorities could automatically apply the "right to make mistakes".
In his response, the minister for the economy stated that the taxable event for a manual gift is the date of its disclosure to the tax authorities. As a result, he indicated that a manual gift made abroad and later declared to the French tax authorities by the beneficiary, who had since become a French tax resident, falls within the scope of gift tax in France (Article 750-ter of the French Tax Code). However, the minister indicated that it is not possible to rule on the application of the "right to make mistakes" in such a situation, as the examination of a specific case would require the filing before the French tax authorities of a detailed statement, including the taxpayer's name and address.
The facts underlying the question were not precise, and the response was very general, but it does provide an opportunity to mention the issues surrounding the taxation of manual gifts made abroad and disclosed in France.
As a reminder, under Article 750-ter of the French Tax Code, a gift of foreign assets between non-French tax residents or to a French tax resident for less than six years within the 10 years preceding the year of receiving the assets, is not taxable in France. In these cases, there is no obligation to file a tax return in France.
Regarding manual gifts (not formalised by a deed) and unlike gifts made through a notarial deed, the tax event is not constituted by the transfer of ownership but by (i) the declaration of this gift by the donee, (ii) the judicial recognition of the manual gift or (iii) the disclosure of the gift to the French tax authorities by the donee.
Several issues arise in connection with this specific taxable event in cases where the beneficiary of a manual gift, while initially a non-French resident, then becomes a French tax resident, particularly in the context of a deed acknowledging a gift or an inheritance in France.
Indeed, under the tax recall mechanism, the beneficiary/heir must report to the French tax authorities any previous gift or manual gift received within the past 15 years. As a result, manual gifts made less than 15 years ago and not yet taxed may become taxable under the tax recall mechanism.
This raises the question of whether the tax recall mechanism applies to manual gifts that did not fall within the scope of French gift tax rules at the time of the transfer of ownership and that were not registered in France, particularly in cases where the disclosure of the manual gift occurs after the taxpayer has become a French tax resident.
Proof of the certain date of the manual gift will thus be a key element because, in the situation of a manual gift not registered in France, the taxpayer may face difficulties proving the certain date of the gift and, therefore, claim that the 15-year period has elapsed.
As part of estate planning and project to settle in or return to France, it is advisable to consider the need or opportunity to register in France gifts of foreign assets made abroad prior to the transfer of the tax residency to France.
