In brief
The French Administrative Supreme Court1 clarifies the conditions under which trust distributions are subject to tax pursuant to Article 120(9) of the French Tax Code (FTC), highlighting the key role of characterizing the distributed amounts and assigning the burden of proof regarding their origin (“income” or “capital”) to the taxpayer.
In more detail
This decision of the French Administrative Supreme Court upholds a much commented on decision of the Paris Administrative Court of Appeal (no. 22PA03139). It provides guidance on the tax treatment of distributions made by a trust both before and after the enactment of the Amending Finance Act no. 2011 900 of 29 July 2011, which amended Article 120(9) of the FTC with respect to trust distributions. It also confirms the decisive importance of the evidence required to establish the proper characterization of amounts distributed by a trust, in particular to distinguish distributions made out of income from those made out of capital.
In the case at hand, a French tax resident received, between 2009 and 2011, amounts paid by an irrevocable trust governed by Canadian law, of which she was the sole beneficiary. These amounts had not been subject to French personal income tax. Following a personal tax audit, the French tax authorities reassessed the taxpayer by reintegrating those amounts into her taxable income, characterizing the payments as taxable income pursuant to Article 120(9) of the FTC.
The taxpayer argued that the amounts constituted repayments of “capital” and not distributions of “income” received by the trust, and that therefore such amounts should not be taxable. The Paris Administrative Court upheld her claim in a judgment dated 30 March 2022 (no. 2004010/1 1). However, in its decision of 11 October 2024, the Paris Administrative Court of Appeal overturned the first instance judgment and restored the tax assessments, noting in particular that the taxpayer had failed to provide sufficient evidence that the amounts received constituted non taxable capital distributions. The taxpayer therefore filed an appeal on points of law before the Administrative Supreme Court.
The Administrative Supreme Court dismissed the appeal, confirming that all of the disputed distributions fell within the scope of Article 120(9) of the FTC and therefore constituted taxable income. The Court held that the evidence relied upon by the taxpayer was insufficient to establish that the amounts distributed were non taxable. After recalling that it is for the taxpayer alone to “produce evidence capable of establishing that the disputed amounts do not correspond to distributions of income”, the Supreme Court found that the trust’s bank statements, accounting documents reflecting a deficit position, and information provided by the Canadian authorities in the framework of international administrative assistance were not sufficient to demonstrate that the amounts received constituted distributions of capital rather than distributions of income within the meaning of Article 120(9) of the FTC.
This clarification regarding the burden of proof is readily understandable, as the tax authorities may not always be in a position — despite international exchanges of information between States — to obtain the necessary evidence. It therefore falls to the taxpayer to demonstrate whether the amounts received represent “capital” or “distributed income".
The Supreme Court further clarifies the scope of Article 120(9) of the FTC in its wording prior to 2011. Read together with Article 12 of the FTC, it is accepted that income arising from a trust is taxable “only if the taxpayer had effective control over it”. This clarification is significant, as prior to the 2011 reform, Article 120(9) referred to the “products of trusts, regardless of the nature of the assets comprising such trusts”, without expressly referring to the concept of an effective distribution. However, except in litigation relating to tax periods prior to the 2011 reform, this clarification is unlikely to remain relevant going forward.
The current wording of Article 120(9) of the FTC provides that amounts are treated as foreign source investment income when they consist of “products distributed by a trust, within the meaning of Article 792 0 bis, regardless of the nature of the assets or rights placed in the trust”. As such, products effectively distributed by trusts are subject to the flat tax at a rate of 31.4% (for amounts received since 1 January 2026), regardless of their form or characteristics and irrespective of the true nature of the underlying income.
Finally, the conclusions of the Public Rapporteur, Mr Bastien Lignereux, in this case provide practical guidance in two respects.
First, the Public Rapporteur notes that the relevant accounting evidence capable of being produced by the taxpayer should be understood as “any document reliably tracing the evolution of the trust’s assets and the financial movements that have occurred”. This clarification highlights the requirement for comprehensive and reliable documentation enabling the precise identification of the origin of the amounts distributed. The decision of the French Supreme Court therefore points to a recurring practical difficulty, as beneficiaries often have limited means to require trustees to provide sufficiently detailed accounting information, particularly information allowing distributions to be clearly earmarked so as to establish whether they are taxable or exempt.
Second, the Public Rapporteur emphasizes that, in his view, Article 120(9) of the FTC is intended to apply regardless of the status of the recipient beneficiary, whether the settlor of the trust or a non settlor beneficiary, as the French legislator did not intend to draw any distinction in this respect. Although no case law confirming this position appears to exist to date, this observation is of practical interest when analyzing the tax regime applicable to distributions of trust income to beneficiaries who are not settlors. It should nevertheless be noted that such an analysis cannot, in any event, definitively rule out the risk of recharacterization as a disguised gift, which must be assessed in the light of the specific circumstances of each case, particularly where the recipient of the distribution is not the settlor of the trust.
1 (Conseil d'État, 9è - 10è ch., 13 mars 2026, n° 500318).