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ALERTE Cabinet Arkwood

It comes as no surprise: the French Supreme Court cancels the proportional penalty for failure to meet the trustees’ reporting obligations

This decision of unconstitutionality of the penalty was expected and the law maker already anticipated it: since January 1, 2017 the only sanctions applicable to the trustee – in the event of a failure to properly report a trust having connections with France – are:

  • a penalty proportionate to the eluded amount (80% of the amount of the eluded tax),
  • or, if no tax was eluded, a fixed penalty of EUR 20,000 per failure.

As a reminder, prior to the change of law, the penalty was:

  • 12.5% of the assets’ value held in the trust with a minimum fine of EUR 20,000 between December 8,  2013 and January 31, 2016 and
  •  5% of the assets’ value held in the trust, with with a minimum fine of EUR 10,000 since the entry into force of the law in 2011 and the December 8, 2013.

By the decision n°2016-618 QPC of March 16, 2017, the Conseil Constitutionnel cancelled such penalty based on a percentage of the trust’s assets on the ground that it was disproportionate to the gravity of the facts. Indeed it was applicable “even when the assets and rights placed in the trust did not escape tax“.

However, the Conseil constitutionnel confirms that the fixed penalty of EUR 20,000 is compliant with the Constitution despite the fact that the law does not make any difference depending on whether the trust is located in a country which has concluded an administrative assistance treaty with France in order to fight tax fraud and evasion with access to bank information. Such fixed penalty was EUR 10,000 until December 8, 2013.

In practice, this decision is good news for all the pending disputes and the voluntary disclosure files for which no transaction was already signed.

Link to the QPC decision!

Posted on 17 March 2017 in Alert

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