FATCA-Style Trust Reporting: Could it go Viral? (Update)


Almost a year to the day I asked this question. Post-G8UK it is clear that the answer is ‘yes’.

Here’s why.

  • In its New Action Plan released today, the UK intends to, among other things,  “put in place mechanisms to ensure that the relevant competent authorities have access to information on trusts and ensure effective mechanisms to share this information with other jurisdictions, in line with bilateral and multilateral agreements.” https://franhendy.com/post-g8uk-updates/
  • In its report to the G8 the OECD has also made clear that in their view “for standardized multilateral automatic exchange of information financial institutions must ‘look through’ shell companies, trusts and similar arrangements including taxable entities to cover the situation where taxpayers seek to hide the principle but are willing to pay tax on the income” (Top of Page 8, A Step Change in Tax Transparency.https://franhendy.com/resources/ second item)

With these new developments in mind, I invite to read (or re-read) the following:

 FATCA-Style Trust Reporting: Could it go Viral?

Widespread objection in Europe to new US extra-territorial reporting obligations on financial institutions with US account holders under the FATCA has not prevented its application by the French to trusts.

Here’s the Evidence:

  • The Loi de Finances Rectificative pour 2011 now obliges trustees to report on trusts with French assets, beneficiaries or settlors; just as the FATCA requires non-US financial institutions to furnish the IRS with details concerning the assets held overseas by US account holders.
  • The reporting requirements apply even if all the parties to the trust reside outside of France; or if the trust holds any kind of French assets in the form of loans, real estate, stocks, shares and even life insurance policies.
  • Like FATCA which co-ops non-US financial institutions in the identification and collection of US taxes, so too does the new regime applicable to France’s wealthy residents in relation to their overseas trustees.
  • If the trust assets have not been included in the French settlors wealth for tax purposes, a 0.5% wealth tax will be payable by the trustees even if the settlor is the taxpayer and applies where the settlor or beneficiaries are French residents or if the trust holds French assets or ‘rights’.
  • Recognising the difficulty of enforcing an attempt at extra-territorial application a country’s domestic tax edicts, the Loi de Finances Rectificative pour 2011 holds the trustees, settlor and beneficiaries jointly liable for the payment of the penalty for non-compliance with the disclosure requirements which is EUR10,000 or 5% of the trust assets, whichever is greater.

Today is D-day.

For British ‘expat’ living in France of which they are 200,000, today is the deadline for disclosing to the French tax authorities any inheritance trusts set up by them in the UK; or in which they are named beneficiaries which include French assets. Once the ‘interest’ has been reported then a tax bill of between 0-3% to 0.5% of the total assets, if it exceeds EUR1.3million, is payable although only if the ‘expat’ has been fully resident in France for more than 5 years.

Trustees in OFCs should be concerned because… 

…the international standards on transparency and tax information exchange also apply to trusts.

In fact the assessment criteria used to determine whether OECD Global Forum (OECD GF) members are in compliance with the ‘letter and spirit’ of the global rules is clear and obliges countries to ensure the availability of identity and ownership information on trusts. It further mandates that members should take all reasonable measures to ensure that information is available to their competent authorities, who are invariably the tax authourities, identifying the settlor, trustee and beneficiaries of express trusts:

(i) created under the laws of that jurisdiction,

(ii) administered in that jurisdiction, or

(iii) in respect of which a trustee is resident in that jurisdiction.

Not only are these G-20-backed rules the basis of the OECD GF Phase I and II country assessments, they also inform the binding obligations found in the bilateral tax treaties and information exchange agreements, the negotiation of which has been the mainstay activity of onshore and offshore financial centres for the past five years.

At the insistence of its common law members, the OECD GF has accepted the inherent limitations of the reporting disciplines sought to be applied to entities with no legal personality like common law trusts which exist merely as obligations giving rise to the legally enforceable fiduciary duties. As a result the OECD GF has noted that it will review their operation after the Phase I reviews are completed.

That however has not led to their exclusion from the ambit of the treaty-based rules on information exchange.

Anti-Trust Agenda

France has been at the forefront of the G-20 campaign to increase the availability of international instruments to compel the exchange of tax information, including information relating to trusts. It has signed 143 agreements codifying the exchange of precisely this type of information.

OFCs with trust business who have entered into TIEA arrangements with France undertaking to provide such information when requested should not underestimate the potency of the Loi de Finances Rectificative pour 2011.  Just as Guernsey has started to do, trust professionals operating in France’s TIEA-partners ought to be auditing their trust portfolios to identify  those with French resident settlors, beneficiaries or assets because when necessary France can request precisely this kind of information from its TIEA partner’s revenue authority; and has a legitimate expectation of receiving such information.

If unchecked, the singular preoccupation with ‘wealth taxation’ by some OECD GF countries from both the common and civil law traditions, coupled with the proliferation of bilateral agreements enabling information exchange, means that the extra-territorial application of French-style FATCA trust reporting, backed as it is by the imperatives of ongoing OECD GF country assessments, has  the distinct potential of going viral.


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