France: Ruling on Proportional Penalty for Failure to Report a Trust
Already repealed for the future since 30 December 2016, the proportional penalty of 12.5% (previously 5% until 7 December 2013) assessed on the market value of the assets and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 has been ruled unconstitutional for the past by the French Constitutional court in a decision of 16 March 2017 (Decision no. 2016-618 QPC).
Consequently, failure to file trustee returns that were due until 30 December 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 16 March 2017 cannot be refunded.
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 the following:
- For annual trustee returns for 2012 and 2013 and event-driven trustee returns for an event that has occurred until 7 December 2013, such as the creation, modification or liquidation of a trust: flat penalty of EUR 10,000.
- For annual trustee returns for 2014, 2015 and 2016 and event-driven trustee returns for an event that has occurred until 30 December 2016: flat penalty of EUR 20,000.
- As from the 2017 annual trustee return and event-driven trustee return due from 31 December 2016: flat penalty of EUR 20,000 or, if its amount is higher and in case of failure to pay the 1.5% sui generis levy, a penalty corresponding to 80% of the mentioned levy.
The statute of limitations for the French tax authorities is applicable until the tenth year following the one during which the tax or the reporting obligation is owed (e.g. 2022 for the annual return of 2012).