Taxation of an Irrevocable Discretionary Trust: A Case Study

A trust was established in Guernsey by a French tax resident. Following his death, an heir reported the income received by the trust pursuant to Article 123 bis of the General Tax Code and the income that had actually been distributed by the trust pursuant to Article 120(9) of the same code.

However, he subsequently filed a complaint arguing that these provisions of the General Tax Code did not apply to the trust in question because it was irrevocable and discretionary.

The Administrative Court of Appeals, to which the case was referred, will confirm that the trust was irrevocable.

In particular, she will note that:

• The Minister's argument that foreign trusts can never truly be irrevocable is unfounded.

• The trust deed provides that the trust is indeed irrevocable.

• The fact that assets were transferred from a prior trust to establish this trust does not prove that the trust can be terminated at the settlor’s discretion.

• The taxpayer contended, without being contradicted, that Guernsey law prevented the beneficiaries from dissolving the trust.

• The trust deed and the statements prepared by the trustee show that the trustee had the discretion to distribute income to the beneficiaries of the trust.

• The guidelines established by the constituent body are not binding and do not limit the administrator’s discretionary authority.

 The Court therefore finds that the trust is indeed irrevocable and discretionary in nature, that the taxpayer does not control it, and that the taxpayer could not therefore be taxed on the taxpayer’s share of undistributed income.

Nevertheless, it will find that the taxpayer was indeed liable for tax on the income distributed by the trust.

CAA Paris, Nov. 6, 2025, No. 24PA00745 et seq.

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