Trusts and trust-like structures

Tuesday, 01 April 2014
When is a trust not a trust? And when is a company not a company? Patrick Delas explains.

France’s first supplementary budget in 2011 contained substantial changes to the taxation regime.1 It codified the taxation of trusts and unadministered estates in France, and introduced a definition of a ‘trust’ into the Code général des impôts (CGI).

For the purposes of the Code général des impôts, a ‘trust’ is effectively any non-French non-corporate structure and will include many structures that for other purposes or in other jurisdiction would not be regarded as trust-like

In the CGI, and therefore for both the capital taxation of assets held in trusts and the taxation of income arising and distributed from trusts, but not otherwise, a trust is defined as ‘the collection of legal relationships created under the law of a state other than France by a person, acting as constituant by inter vivos deed or taking effect on death, which places assets or legal rights under the control of an administrateur for the benefit of one or more bénéficiaires or for the purpose of a specific objective’.2 For CGI purposes, a ‘trust’ is effectively any non-French non-corporate structure and will include many structures that for other purposes or in other jurisdictions would not be regarded as trust-like. A French structure cannot be a trust, but what trust-like French structures are available?

Fiducie

‘Trust’ is often translated ‘fiducie’. The fiducie is available to individuals and similar to a nomineeship in common law.3 The Registre National des Fiducies was created to ‘facilitate enquiries and fight against tax evasion, money laundering and terrorism’.4 All fiducies must be registered and details of the constituant (settlor), fiduciaires (trustees) and beneficiaries given.

Société anonyme and société anonyme simplifiée (SA/SAS)

These are private companies with shares that can be used for any civil or commercial purposes. Only the directors’ details are registered with the Registre du Commerce et des Sociétés (RCS), and they are publicly available. Shareholders are only known to the company itself, its members and auditors. An SA/SAS may be an effective (but not cheap) way of creating a screen between a property and its beneficial owners. All other types of companies, such as a SARL or SCI, must be registered, together with shareholders’ full details.

Fondation/Fonds de dotation

Fondation refers to the deed upon which one or several individuals or legal entities irrevocably settled assets for the achievement of a purpose of general interest (not for profit).5 The fondation owns its assets absolutely. Distributions are prohibited. The fonds de dotation has a similar definition and roughly corresponds to an endowment fund.6 Both are registered. The creation of a fondation requires government approval (a decree).

Gift with reservation of usufruit

The usufruit is a typical notion of civil law and distinguishes between the legal ownership transferred to the nu-propriétaire (donee) and the right to the benefits and use of the property retained by the usufruitier (donor). When applied to immoveable property or company shares (except in the case of an SA/SAS ), the usufruit interest must be registered (with the Land Registry or RCS) and the information publicly available.

Matrimonial property arrangements (MPAs)

MPAs allow transfer of property between spouses on death or divorce. MPAs are registered with the registry office where the marriage took place. A specific registry of the Ministry of Foreign Affairs records MPAs where the marriage took place abroad. When applying to immoveable property, MPAs are published at the Land Registry. Registered commerçants are subject to a special obligation to publish the arrangement with the RCS.

Donations graduelles/résiduelles

Available since 2006, these consist of a lifetime gift whereby the donee undertakes to keep the property for a beneficiary. The beneficiary will receive the property (or a residue) on the donee’s death (this usually applies between surviving spouse and children). Like the usufruit, donations graduelles/résiduelles do not have to be registered except when applying to immoveable property or company shares (with the exception of an SA/SAS).

Assurances-vie

Life insurance is widely used in France as a savings or pension vehicle. From 1 January 2016, assurance-vie contracts will have to be reported to the French Revenue.7

Wills

A central registry of wills was created in accordance with the Basel Convention of 1972.8 Registration is by no means obligatory but will be systematic if the will is made with the assistance of a professional (notaire).

  • 1. Law No 2011–900 of 29 July 2011 de finances rectificative pour 2011 (LFR 2011), in force as of 31 July 2011
  • 2. CGI, article 792–0 bis-I-1, inserted by LFR 2011, article 14 I 4°
  • 3. The fiducie was introduced by the Law of 19 February 2007
  • 4. Created by the Decree of 2 March 2010
  • 5.  Defined by the Law of 23 July 1987
  • 6. Created by the Law of 4 August 2008
  • 7. This provision is from the 2013 supplementary budget (LFR 29/12/2013) and will also apply to foreign policies, e.g. Luxembourg or Ireland
  • 8. Fichier Central des Dispositions de Dernières Volontés
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Patrick Delas

Patrick Delas TEP is a Senior Associate at Russell-Cooke. Patrick wrote a paper on behalf of STEP for the UK Treasury on French legal vehicles similar to trusts. That paper forms the basis of this article.

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