In more detail
As a reminder, since 2011, Article 1649 AB of the French Tax Code (FTC) provides for specific reporting obligations in France for trustees of foreign trusts, in particular if the trustee, the settlor, or at least one of the beneficiaries is French tax resident, or when the trust holds assets or rights located in France:
- An annual return to report the fair market value as of 1 January of the assets and rights held by the trust and their capitalized income, to be filed before the Non-French Tax Resident Service no later than 15 June of each year.
- An event-driven return to report the creation, modification or termination of the trust, to be filed before the Non-French Tax Resident Service within one month as from the event. The notion of "modification" of the trust is interpreted broadly to include any change, addition or disposal of assets, rights, or income from the trust. Thus, any distribution made by a trust must be reported through an event-driven return.
Failure to comply with these obligations triggers a EUR 20,000 penalty (Article 1736 of the FTC).
In the present case, a Maltese company acting as trustee, filed, on 17 June 2019, four annual returns for the years 2015 to 2018. The FTA applied a late-filing penalty of EUR 20,000 for each year concerned, amounting in total EUR 80,000.
The Tax Court confirmed the application of penalties as returns were filed after the deadline. Indeed, the Court emphasized that in this case, "these returns were not filed respectively on June 15 of the years 2015, 2016, 2017, and 2018".
The decision does not specify whether the trustee filed the annual returns spontaneously or in the context of a tax audit or a formal notice. Based on our experience, penalties are generally not applied when the trustee files the returns spontaneously. If the trustee had indeed filed the returns in question spontaneously, one might wonder whether the judge's position could trigger a change in the FTA's practice, which could potentially becoming less lenient toward late filings, even on a voluntary basis. We prefer to believe this was a specific case, so as not to discourage any efforts of the trustees to regularize the situation, if necessary.
