New reform impacting the French reporting obligations of trustees
An ordinance from the French Council of Ministers dated February 12, 2020 implements the EU directive fighting against money laundering and financing of terrorism (AMLD 5).
Among other provisions, it directly impacts the French reporting obligations of trustees (article 1649 AB of the French Tax Code is modified).
1. Trusts falling within the scope of the French reporting obligations
Until now a trust was caught within the scope of the French reporting obligations of trustees if:
- Its trustee, settlor or one of its beneficiaries qualified as a French tax resident or
- It was holding a French asset.
The new text of law now specifically covers the situations targeted by the registry of beneficial ownership: where the place of establishment or residence of the trustee of the trust is outside of the EU, it should meet the reporting obligations when it enters into a business relationship or acquires real estate in the name of the trust in France.
The notion of « business relationship« refers to a specific article of the French Monetary and Financial code (article L561-2-1) which targets a professional or commercial relationship with a client, including the beneficial owner. In particular, for life-insurance or capitalisation contracts, the business relationship includes the beneficiary of the contract or if applicable the beneficial owner of such beneficiary. Generally speaking, a business relationship is intended, at the time when the contact is established, to be of a certain duration. The business relationship may be set forth in a contract under the terms of which several successive transactions shall be carried out between the contracting parties or which places continuous obligations on them. A business relationship shall also be created where, in the absence of such a contract, a client has the benefit of regular assistance from a professional to carry out several transactions or a single transaction of a continuous nature.
Unfortunately, this definition remains very vague and we hope that it will be further developed in a decree or in future administrative guidelines.
2. Content of the information which should be provided
Where French returns need to be filed, on top of the information which were already requested:
- The protector(s), if any, will need to be disclosed as well as any other natural person exercising effective control of the trust;
- For each member (settlor, beneficiaries, trustee, protectors and other controlling person), their nationality is now also requested.
In practice, the French official forms currently available are no longer appropriate. We hope that new forms will be issued quickly in order to meet the annual deadline of June 15.
3. Details about controls and penalties
The code of tax procedure is also modified and now specifies that the Administration should notify to the trustees all discrepancies between the information gathered in the registry of trusts and the information known to administration about the beneficial owners. In the case where the trustees would agree with the notification or provide sufficient reply, the administration would modify or complete the registry of trusts accordingly. Failure to reply from the trustee or insufficient reply could lead to the EUR 20,000 penalty already existing to sanction the French reporting obligations of trustees.
4. Registry of trusts
The information contained in the declarations of trusts are gathered in a registry.
A full access to such registry is granted to a list of professionals such as the judicial authorities, customs, police authorities, tax authorities, financial intelligence unit and authorities controlling the anti-money laundering obligations. Such professionals can communicate to the authorities of other Member States all the information necessary to their mission spontaneously or upon request.
Separately, a restrictive access is granted to a much wider scope of persons:
- Who can request restrictive information?
- all the entities subject to the anti-money laundering KYC rules (which includes financial institutions), as well as
- any person filing a written request about a trust which controls directly or indirectly an entity located outside of the EU, and
- any person who can justify of its legitimate interest within the framework of the fight against money laundering (which may include some NGOs and investigation journalists).
- Which details can they access? The identity of the beneficial owner of the trust including his name, date of birth, country of domicile, nationality as well as the nature and extent of his interest.
What is meant by “the extent” of the interest of a beneficiary of a trust raises many questions.
We will need to follow-up closely with the implementation of such new texts.