Landmark ruling on trusts
Following a tax audit of the individuals,administration sent them a reassessment proposal that the taxpayers were the "owners" of trusts located in Gibraltar. In particular, the tax authorities applied Article 123 bis of the General Tax Code.
In a ruling dated April 16, 2025, the Paris Administrative Court of Appeal held, in particular, that:
Anglo-Saxon trusts clearly fall within the scope of Article 123 bis.
The fact that a nominee holds the "securities" of the trusts does not prevent the taxpayers from being considered holders of at least 10% of the shares. The Court notes that the taxpayers had "management powers over the companies placed in trust, including the authority to open and manage bank accounts over which they have signing authority, and from which they receive the profits."
The consulting services billed by the trusts to the husband’s companies would have constituted a commercial activity in France subject to commercial taxes. This activity was exempt from tax in Gibraltar because it was an offshore activity. The trusts were therefore indeed subject to a preferential tax regime within the meaning of Article 238 A of the General Tax Code, justifying the application of Article 123 bis.
The use of trusts constitutes an artificial arrangement since these trusts (i) do not engage in any economic activity in Gibraltar, (ii) their only expenses are overhead costs (registration, management, accounting, and financial fees), (iii) they do not pay rent or salaries, and (iv) the clients of the trusts are solely French companies owned by the trust holders.
The Court also notes that the taxpayer cannot, in order to "justify the validity of establishing entities abroad," have turned to France Offshore "as part of an effort to expand the business or optimize tax planning."
The taxpayer has not provided proof that he left the trust in 2011 by submitting a certificate, even though he still held a "General Power of Attorney" as of October 2012.
With regard to the 80% surcharges for fraudulent schemes, the Court holds that "the fact that a portion of the trusts' income was re-invoiced and taxed in France is not sufficient to preclude the classification."
The Court thus upholds the tax assessment against the individuals with respect to both taxes and tax penalties and fines for failing to report bank accounts held abroad.