The Conseil Constitutionnel ruled that the uncapped 12.5% (5% prior to 8 December 2013) penalty on trust assets provided for under Article 1736 IV bis of the French tax code for each failure to comply with trust reporting obligations was disproportionate and therefore unconstitutional.
The decision takes effect as of the date of publication, which means that it applies to all cases in progress but not to court decisions or tax settlements that have already been finalised.
However it held that the minimum fixed penalty of €20,000 for each failure to comply with the French trust reporting requirements before 31 December 2016 (€10,000 prior to 8 December 2013) was both constitutional and proportionate to the anti-tax avoidance objective of French trust reporting rules.
Under new legislation passed on 29 December 2016, trustees remain subject to annual and event-based reporting requirements in France when either the trustee, the settlor or one of the beneficiaries of a trust, are French tax residents or if any of the assets or rights placed in the trust are located in France.
As of 31 December, a penalty of 80% of the tax avoided in respect of assets and rights in trust applies in the case of failure to comply with French trust reporting obligations. This penalty cannot be lower than €20,000 and is exclusive of the €20,000 fixed penalty provided for by Article 1736 paragraph IV bis of the French tax code.