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Proportional Penalty for Failure to Report A Trust to French Tax Authorities Ruled Unconstitutional

Trustees may be eligible for reimbursement.

On March 16, 2017, the French Constitutional court ruled as unconstitutional the proportional penalty of 12.5 percent (previously 5 percent until Dec. 7, 2013), effective retroactively, assessed on the market value of the assets and capitalized income held in trust in case of failure to report a trust or certain events related to a trust. The penalty had already repealed prospectively since Dec. 30, 2016.

Consequently, failure to file trustee returns that were due until Dec. 30, 2016 can no longer trigger the application of this penalty and the trustee may claim for the reimbursement of this penalty provided a claim can still be submitted. The sole limit to the consequences of the decision of unconstitutionality: penalties definitely settled in a final judgment or in a transaction executed before March 16, 2017 can’t be refunded.

Applicable Penalties

From now on, the applicable penalties in case of failure to report a trust or certain events related to a trust to the French tax authorities are: 

  • For annual trustee returns for 2012 and 2013 and event-driven trustee returns for an event that occurred until Dec. 7, 2013, such as the creation, modification or liquidation of a trust: flat penalty of €10,000.
  • For annual trustee returns for 2014, 2015 and 2016 and event-driven trustee returns for an event that occurred until Dec. 30, 2016: flat penalty of €20,000.
  • As from the 2017 annual trustee return and event-driven trustee return due from Dec. 31, 2016: flat penalty of €20,000 or, if its amount is higher and in case of failure to pay the 1.5 percent sui generis levy, a penalty corresponding to 80 percent of the mentioned levy.

The statute of limitations for the French tax authorities is applicable until the 10th year following the one during which the tax or the reporting obligation is owed (for example, 2022 for the annual return of 2012).

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