The new French rules of taxation for trusts: wide (scope), heavy (tax) and severe (penalty)

The French Amended Finance law for 2011 provides for new rules on the taxation of trusts, mainly consisting in:<l type="unord"><li> subjecting the trusts assets to inheritance tax (in France) at the time of death of the settlor (subject to the application of the territoriality rules and of double tax treaties), whether these assets are immediately transferred to the beneficiaries or remain in the trust (at rates up to 60%); </li><li> including (under certain conditions) the trusts assets in the settlors taxable estate subject to wealth tax (ISF); </li><li> providing for duties to declare for the trustees, which will notably have to disclose to the French Tax Authorities (FTA) information on (i) legal documents of the trust and (ii) the value of the assets held by the trust, if the settlor and/or one of the beneficiaries is/are French resident(s) or when part of the trusts assets is located in France; </li></l> Non-compliance with these duties will be sanctioned by a fine amounting to 5% of the value of the trusts assets or at least €10,000;<l type="unord"><li> establishing a specific 0.5% tax in principle to be paid by the trustee in the event the settlor fails to disclose the trusts assets in its ISF tax return or in case of non-respect of the duty to declare mentioned under the third point above. </li></l>