Category Archives: DIP


EU Treaties form the constitutional basis of the EU and create the Single Market supported by the four freedoms of movement in goods, people, services and capital. The EU Treaties were implemented into UK law through the European Communities Act 1972 (« ECA »)

From a legal standpoint, by becoming a third state of the European Union, EU legislation is no longer applicable to the United Kingdom from January 1, 2021.

A. The impact of Brexit on family law

The impact of Brexit is limited in family law given that the UK did not ratify most of the EU regulation, such as :

  • Regulation (EU) n ° 1259/2010, known as « Rome III », on the law applicable to divorce and legal separation, of Regulation (EU) n ° 650/2012 ,
  • Council Regulation (EU) 2016/1103 of 24 June 2016 in matters of matrimonial property regimes,
  • Regulation (EU) 2016/1104 of the Council of 24 June 2016 in matters for registered partnerships.

Therefore, in matters of law applicable to divorce, inheritance, maintenance obligations, matrimonial regimes or registered partnerships, Brexit will not change the current legal situation. Common private international law continue to apply.

Brexit will however have a noticeable impact in other areas of family law, for example :

  • in matters of jurisdiction and the recognition and enforcement of divorce decisions
  • or relating to parental authority.

Regulation (EC) No 2201/2003 (Brussels II bis Regulation) will continue to apply to the recognition and enforcement of authentic instruments drawn up or registered before January 1, 2021 (no exequatur, neither legalization nor apostle).

After this date, French authentic instruments will no longer be able to benefit from automatic recognition or enforcement in the United Kingdom (and vice versa). It will take resort to private international law as well as to the exequatur procedure.

However, the United Kingdom remains subject to the Hague Convention of 19 October 1996. Likewise, he will remain subject to the Hague Convention of 2 October 1973 on the recognition and enforcement of decisions in matters of maintenance obligations.

B. The impact of Brexit on other areas of civil law

The UK’s exit from the European Union will have consequences in the following areas:

  • Regulation (EU) n ° 1215/2012 (Brussels I bis regulation) will continue to apply to the recognition and enforcement of authentic instruments drawn up or registered before January 1, 2021 (no exequatur or legalization, nor apostille). Subsequently, French authentic acts drawn up or registered from January 1, 2021 will no longer be immediately applicable and an exequatur must be obtained as well as an apostille. From January 1, 2021, the 1961 Hague Convention removing the requirement to legalize foreign public documents (known as the « Apostille Convention ») will apply between the Member States of the Union and the United Kingdom.
  • Regulation (EC) No 805/2004 (European Enforcement Order for Uncontested Claims) will continue to apply to authentic instruments drawn up before January 1, 2021, provided that certification as a European Enforcement Order has been requested before the end of the transitional period (no exequatur, no legalization, no apostille). Subsequently, an exequatur must be obtained just like an apostille. From January 1, 2021, the Apostille Convention will apply between the Member States of the Union and the United Kingdom.
  • The Withdrawal Agreement does not address Regulation (EU) 2016/1191 (Public Documents Regulation) which removes the legalization and apostille requirement between Member States for certain public documents (for example, a birth certificate ) and simplifies other formalities. The application of this regulation does not depend on the date of issue of the public document by the authority of one Member State, but on the date on which it is presented to the authorities of another Member State. Consequently, the Regulation will no longer apply to a public document issued by the UK authorities and presented to the authorities of a Member State of the Union after the end of the transition period, regardless of its date of issue and its period of validity. An illustration: the requirement of a « probate » in the context of an English or Scottish succession will now require the apostille (Apostille convention).

Source of the Conseil supérieur du Notariat.

The amendment repealing the flat-rate income tax on some non-residents

The amendment repealing the flat-rate income tax on some non-residents

(Articles 164 C & 197 A of the French Tax Code)

 The Amending Finance Law 2015 repeals provisions regarding the flat-rate taxation of some residents of third countries who own one or more residential properties.

This is to reflect decisions from both the Court of Justice of the European Union and the French Conseil d’Etat and shall take effect for the taxation of income of the year 2015.


 A reminder

Taxpayers domiciled outside France are, in principle, taxed solely on their French source income.

However Article 164 C of the French General Tax Code provided that people who did not have their tax domicile in France but who had in France one or more residential properties, in any capacity whatsoever, directly or under cover of third parties, were subject to income tax on a base equal to three times the actual rental value of this or these properties unless the French source income of the concerned parties was higher than said base, in which case the amount of such income would be the basis for taxation.

This measure included several exceptions that significantly reduced its scope.

In deed said provisions did not apply to:

  • French nationals who could prove they underwent in the country where they had their tax residency a personal tax on all of their income and if said tax was at least equal to two thirds of the one they would have had to undergone in France on the same tax base;
  • French nationals whose expatriation was justified by professional requirements and whose tax domicile was located in France continuously for four years prior to their transfer.
  • Taxpayers domiciled in countries or territories having concluded with France a tax convention to avoid double taxation with respect to taxes on income.


Recent court rulings

Drawing on the consequences of decisions from both the Court of Justice of the European Union (CJEU) and the French Conseil d’Etat, Article 21 of the Amending Finance Law 2015 repeals the provisions of articles 164 C and 197 A b of the French General Tax Code.

  • Preliminary ruling Welte of the CJEU dated October 17th, 2013 2013 (Case C-181/12 Welte of October 17, 2013)

It stems from said ruling that patrimonial property investments, made for private purposes i.e unrelated to economic activity, do not constitute direct investment within the meaning of Article 57 of the Treaty establishing the European Community (TEC).

The opinion of the Advocate General MENGOZZI delivered on June 12th, 2013 regarding said case shed light on the interpretation of Article 57(1) EC, and its applicability.

“41.       As I have already pointed out, Article 57(1) EC enables Member States to maintain, vis-à-vis third countries, restrictions existing on 31 December 1993 on the movement of capital involving ‘direct investment – including in real estate’.”

The question whether the French rules above mentioned fell within the temporal and material scope of the standstill clause was less straightforward.

The ratione temporis condition laid down in Article 57(1) EC was met by Article 164 C of the French General Tax Code, and therefore we will not go into further detail in the present article.

However as regards the material scope of Article 57(1) EC, it should be noted that there were legitimate doubts as to whether capital movements in the form of investments in real estate unrelated to economic activity, regulated by the tax legislation of a Member State entailed ‘direct investment – including in real estate’ for the purposes of Article 57(1) EC.

“50.     As I have mentioned, in the absence of a definition of ‘capital movement’, the Court has, so far, consistently relied on the definitions contained in the nomenclature in Annex I to Directive 88/361 and the associated explanatory notes in order to interpret both Article 56 EC and Article 57 EC. (30) …”


“54.     According to the nomenclature, investments in real estate covered by category II, which are defined in the explanatory notes as ‘[p]urchases of buildings and land and the construction of buildings by private persons for gain or personal use’, are investments ‘not included in category I’, that is to say, not direct investments.”

“55.     Thus, the reference in Article 57(1) EC to ‘direct investment – including in real estate’ (33) should be construed as covering investments in real estate which constitute direct investments, that is to say – to paraphrase the explanatory notes – investments in real estate of such a kind as to establish or to maintain direct links with an entrepreneur or an undertaking in order to engage in an economic activity.”

“56.     By contrast, investments in real estate of a financial nature, which are unconnected with the pursuit of an economic activity, do not fall within the scope of Article 57(1) EC.”

  • Two judgments of the State Council of 26 December 2013 (No. 360488 and 332885)

Based on the conclusions of the ruling Welte, the French Conseil d’Etat in two successive decisions concluded that the flat-taxation of non-residents under article 164 C of the General Tax Code was contrary to the principle of free movement of capital in Article 56 TEC.

Article 164 C aimed to « submit detention in France of residential property to a tax payable by persons not having their tax domicile in France,». The court considered « that such a measure is likely to discourage non-residents to acquire or hold such property ».


The Amending Finance Law 2015

Article 21 of the Amending Finance Law 2015 (Law n°2015-1786 dated December 29th, 2015) abolishes the flat-rate taxation of certain non-residents owning one or more residential properties in France by repealing the provisions of Article 164 C of the French General Tax Code, a long side the provisions of Article 197 A b of said code.

Previously during the session en hémicycle on December 1st, 2015 Valerie Rabault, ‘rapporteure générale de la commission des finances, de l’économie générale et du contrôle budgétaire’ declared that: « Our Committee had already issued a favorable opinion on this amendment, but in addition, the services of the Ministry of Finance – whom I thank – indicate that this provision would concern 114 persons for a tax revenue of 86 000 euros. I think that the State can afford to do without said sum!

Said measure applies from the taxation of income of 2015.


Adopting your stepchild

French legislation knows two different kinds of adoptions:

  • One where the blood parent is deprived of any right on his child, where all links between the child and his biological family end;
  • One where, in the contrary, the child meets two families: his biological one and his adoptive one.
    Both have rights on the child, custody and authority to help him/her grow up and become adult.

The latter adoption is often used for step children, or where one child was raised in the absence of his biological parent (car or plane accident, disease…) by uncles and aunt for instance.
When stepparents are taking full day-to-day responsibility for stepchildren they may want to make their relationship with these children more formal and this is where the adoption comes.


English Law knows only one kind of adoption. We call it under French Law : ‘full adoption’ !

Several conditions must be fulfilled in the UK – Adoption and Children Act 2002:

The Child must :

  1. be under the age of 18 when the adoption application is made
  2. not be (or have never been) married or in a civil partnership

Both birth parents normally have to consent to the adoption, unless:

  1. they can’t be found
  2. they’re incapable of giving consent, eg due to a mental disability
  3. the child would be put at risk if he/she wasn’t adopted

The adoption assessment in England is very similar to that in France:

An assessment is used to help a court decide if you can adopt the child (rather than being sent to an independent adoption panel).

The court will ask your local council to provide a report on your partner, the child and the other birth parent.

If granted, the adoption court order gives you parental responsibility for the child – along with your spouse or partner.


International conflict of law:

Pursuant to UK law, one must follow the adoption laws of the country of residency of the adopter.

You must follow UK adoption law if you’re normally resident in the UK.

You may have to give a sworn statement in front of a solicitor that you’re no longer habitually resident in the UK, the Isle of Man or the Channel Islands if the country asks for a ‘no objection’ letter from the UK government.

You must send this statement either to the Intercountry Adoption Team at the Department of Education or the nearest British embassy.

Also, the guidance for adoption provided by the British government is clearly recognized by the convention on adoption made under the Hague convention of 29 May 1993. The UK implemented that convention on 1 June 2003.


How can somebody adopt a stepchild? Is a British citizen entitled to adoption in France? What are the limits?

Article 370-3 of the French Civil code foresees whichever the law is applicable that adoption requires the consent of the legal representative of the child. Consent must be free, without consideration and with full understanding of its consequences.

This rule is inspired from the historic case of PISTRE in January 1990 and from article 4 of the International Hague Convention on adoption.

French Law also provides that the conditions of adoption are normally subject to the National Law of the adopter or, in case of adoption by spouses, with regard of the law governing the effects of their union.

The adoption cannot be pronounced if the national law of one of the spouses bans it.

Legally speaking the “adoption simple” is not forbidden in the UK but unknown! Does that mean a British resident in France can adopt “simply” his/ her stepchild? Would that be recognized and would that have any effect in France?

If the adopted child is under 18, the French jurisdiction would certainly accept to pronounce the adoption whereas if the child is over 18, the French jurisdiction would certainly refuse it because of the rules applicable in the UK.

When the adoption is ordered it will have full effect in France and of course and in the UK because of the implementation of the Hague convention in UK Law as evoked here above.

Be careful with Adult adoption which is permitted in France contrary to England. Although you have legally adopted a child abroad according to the rules of the state of your residency, England might not consider that adoption as valid.


What are the regular effects of an adoption order?

a) Legally speaking

The Court order of adoption takes away parental responsibility from:

  • the child’s other birth parent
  • anyone else who has parental responsibility for the child

b) From a tax point of view:

Transmissions that occur between adoptive parents and the adopted person are subject to normal taxation in the direct line for succession rules, (progressive rate after application of a personal allowance of € 100.000,00).


What are the effects of a ‘simple adoption’ order?

a) Legally speaking

The Court order of adoption does not take away parental responsibility from the child’s other birth parent but can multiply the number of guardians in the best interest of the child.

Simple adoption creates a maintenance obligation between adopter and adoptee and vice versa.

The biological parents of the adopted child are not bound by this obligation unless the adoptee proves that he cannot obtain relief of his adoptive parents.

The obligation of the adopted child to his biological parents ceases if he was admitted as a ward of the state and supported by welfare.


b) from a tax point of view:

Transfer of assets that occur between adoptive parents and adopted follow are levied at the prescribed tariff for the link natural kinship between them or, where applicable, the tariff for transmissions between non-relatives.

Article 786 of the French CGI provides for a number of exceptions to this principle, so that transmissions thus referred to are taxed according to the tax regime applicable to lineal transmissions.

It is especially the case when somebody adopt his/her stepchild where stamp duties are the same as the ones applicable in the direct line.


Examples :

Mr Smith, British Citizen, is residing in Dordogne (France) where he married Hilary in 2007 who is the widow of a UK soldier. Hilary had one child from her previous marriage named Winston.

Mr. Smith is willing to adopt his stepchild who agrees with that. Is that adoption possible?

According with article 370-3 of the French civil code, the adoption is subject to the British rules (National law of the adopter).

We know that UK law prohibits adoption between adults and only knows ‘full adoption’.

That should imply whether Mr Smith is still willing to continue the adoption process that he will have to adopt his stepchild before he turns18 and in ‘full adoption’ (with the consequence of wiping out his stepchild natural/ biological kinship).

When a stepparent adopts their partner’s child it ends the legal relationship between that child and their other natural parent and that wider family network (grandparents and other relatives).

Sometimes that makes the child feel that they have to choose between different adults and later may blame you or your partner.

The child is losing all maintenance and inheritance rights too.

It is likely the French court would accept a ‘simple adoption’ (see case 1 infra) yet the British court does not know that type of adoption for the reason seen aboved.

Buying and selling a vineyard in France

The particularities of purchases in the wine sector are not well known, especially to foreign investors.

Let’s take a quick insight into this sector that is so sought-after, especially after some substantial changes were made by the last agricultural law.

The last three years have been rich with viticultural purchases… Château Beychevelle, Château Lascombes, Château Haut Redon and many others.

Even though dealings are numerous, caution must be applied.
The French legal system is highly protective with its agriculture and seeks to preserve the quality of the soil by maintaining a minimum size to each farm and by giving priority to qualified farmers.

Some transactions can be complex, and this may be down to several reasons, for example:
– The legal and commercial organization of the domain (one or more companies holding ownership of the property, when another may manage & run the farm);
– The purchase scheme envisaged: whether it be a purchase of shares (« share deal ») or a purchase of certain viticultural assets (« asset deal »);
– The person/profile of the purchaser (farmer or investor, French or foreign).

These transfers are not only subject to a control of the French land agencies, named SAFER’s (« Sociétés d’aménagement foncier et d’établissement rural » = Land Improvement and Rural Settlements Companies), i.e agricultural bodies that have a right of first refusal of most rural properties that come onto the market; but are also subject to national regulations that monitor farming structures (« le contrôle des structures des exploitations agricoles »).

All of these factors reflect the specific nature of transactions in this field.

The latest agricultural law of October 14th, 2014 made quite a few changes that will affect vineyard sales.

Throughout this article we will attempt to raise both future purchaser’s and vendor’s awareness on how to structure their transactions.
First of all we will take a look at asset deals, before talking about share deals, and finally we will take a look at the specific reconveyancing system (« retrocession ») involving the SAFER.

Asset deals in the wine sector

As part of an asset deal the investor or farmer acquires immovable and movable assets assigned to the wine-farm (cultivated plots, replanting rights, bare land, built property, intellectual property rights, necessary equipment to run the farm, etc.)
The running of the vineyard will be continued under a different legal entity. The buyer will need to create a new legal entity or use an existing one for completing the transaction and all further operations.

The major advantage of this scheme for the buyer is that he/she is exposed to smaller risks as possibilities of adverse effects arising are minimized since within the asset deal, apart from the assets, only certain liabilities are taken over.
The purchaser is protected against any liability that would be transferred together with the assets, contracts and employees of the farm.
Memo: Currently the courts consider on the basis of Article L.1224-1 of the Labour Code that the employees assigned to the farm are transferred to the new owner when he/she purchases an « autonomous economic entity whose identity and activity is maintained or resumed ».

In the case of an agricultural fund (« fonds agricole »), which has a civil character by nature, the legal and tax-related rules applied to business (i.e commercial) sales (eg registration rights and the right of opposition of creditors of the seller) are not applied by principal. However they may be used if the purchased farm also has a commercial activity, such as a trade of wine products not issued from the wine-farm.


  •  The requirement to obtain a farming licence

Article L.331-2 of the Rural Code, amended by the last agricultural law of October 13, 2014 specifies in which cases vineyard purchases are subject to obtaining a farming permit. In France this is called an « autorisation d’exploiter au titre du contrôle des structures agricoles ».

Up until now, the control of agricultural set-ups was set by national guidelines, who were applied at a departmental level to reflect local criteria.
However the new law has shifted the departmental framework. Thus, during the course of 2015 regional masterplans (« schema directeur régional ») will replace existing departmental masterplans. A decree of the French Conseil d’État should come specify the conditions and new development modalities of said regional masterplans, however the decree has not been issued yet.

The regional masterplans should set some basic standards, and in particular define the surface threshold beyond which a farming license is required.
Memo: The reference unit (« l’unite de reference », l’UR) previously defined at a departmental level has been abolished by the new law.

The transactions that trigger the control of agricultural structures remain largely unchanged: new set-ups, expansions or farm holdings. However the threshold should be lowered to be situated between 1/3 and 1 regional average agricultural area. Mechanically this will have for effect the increase in numbers of transactions subject to authorization.

To summarize new set-ups, expansions or farm holdings are subject to prior approval provided that:
– the total area to be farmed exceeds a threshold determined by the regional masterplan – we are still awaiting said plan, however and to give you an idea, before the departmental plan from December 29, 2000 stipulated that the total area would need to exceed 1.5 times the reference unit (UR). This was the equivalent of 33 hectares of vines used in AOC Bordeaux red;
– the purchasing structure contains no member qualified as a farmer, and this whatever the total area purchased to be farmed.
Therefore, the purchase of a vineyard by an investor will normally be subject to obtaining a license to operate.

Memo: Until the publication of the new regional masterplans, which should take place this year, the regulations on control of agricultural set-ups will continue to apply as before.


  • The pre-emption rights of the SAFER

The main agricultural bodies that supervise farmland transfers are the SAFER.

Each SAFER has a right of first refusal allowed by the Prefect (« Monsieur le Préfet »). Dependent on the geographical area they are granted a minimum surface area of real estate sold over which their right may be used.
The minimum area granted to the SAFER Aquitaine, for example (which covers the departments of the Gironde, the Landes and the Pyrénées-Atlantiques) is 10 ares (0,25 acres) in the wine-growing areas where wine have an « appelation d’origine protégée » (APO).

Similarly are also subject to the pre-emption rights of the SAFER transfers of immovable property used for agricultural purposes, and their movable assets, as provided by Articles L.143-1, R.143-1 and following of the Rural code.


Share deals in the wine sector

As part of a share deal, the buyer (investor or farmer) purchases the shares and equity stakes of the company that owns the assets necessary to run and operate the vineyard, winery and trade of all its products.

In such a case the farms operations continue to be performed notwithstanding the change in ownership.
Benefits, costs, rights and obligations associated with the existing assets and liabilities (debts) remain within the company and all potential risks associated with the above are usually taken over by the purchaser.

Memo: As part of the agreement between the selling company and the purchaser of certain assets, subsidiaries or investments, the company is subject to standard warranty clauses relating to assets and liabilities. The asset and liability granted ensures the purchaser that all the necessary resources are indeed owned by the company and that there are no hidden liabilities. In practice the vendor makes several statements in the contract about the company in which he basically declares the assets of the company sold (the existence of said assets and regularity of the accounting methods). In addition, he ensures the shareholder’s equity on a given date (of the latest balance sheet) and agrees to pay the purchaser all decreases whose generating phenomenon took place before the date of the last balance sheet. This guarantee is given over a period of time and will have a fixed ceiling.

Three main corporate structures exist where farming is concerned:
– Landholding companies – called « Groupements Fonciers Agricoles » (GFA)
They are agricultural land groupings whose purpose are to create or to preserve one or more farms. They have the specificity to enable people to preserve land holdings outside the strict definition of the farm.
At least two partners are required in a GFA.

– Farm management companies – called « Sociétés Civiles d’Exploitation agricole ou viticole » (SCEA /SCEV)
Their aim is to manage or run a farm. They provide the advantage of allowing non-farming partners, investment companies for example.

– Commercial companies – of which we have les « Groupements d’intérêt économique et environnemental » (GIEE)


This is a new tool created by the last agricultural law of October 2014.
The aim is to promote the emergence of collective dynamics taking into account both economic and environmental objectives. And to encourage their creation they will benefit from a deliberately flexible framework, no imposed form or legal status.


  • No requirement to obtain a farming licence

The control of agricultural set-ups is not specific to the asset deals.
Are also subject transactions affecting the share capital of the management companies in order to avoid the setting-up of companies whose sole purpose would be to avoid said regulations.

For example the Ministry of Agriculture considers that if a farmer takes an interest in any operating company he must be subject to prior authorization provided that the total surface area exceeds the threshold defined in the master plan. Indeed, such an action is seen as an extension of the initial set-up, subject to authorization.

However things are not all clear when it comes to share deals, and uncertainties arise especially when it comes to financial participations.
The concern comes from the large definition of the concept of farming business (« exploitation agricole ») within the meaning of Article L.331-1 of the Rural Code.

A circular from the Ministry of Agriculture of May 21st, 2008 states that « the mere financial contribution in an agricultural company is not subject to authorization under the control of agricultural set-ups. »
We can deduce from this the essence of the previous agricultural laws, i.e the fact that farmer is more important than the investment of non-farming partners.
However when we know the possible influence any investor can have on decision making it was envisaged to qualify investors as ‘farmers’ in regards to the control of agricultural set-ups.
The law of October 13, 2014 attempted to redefine the notion of farm businesses subject to the control by targeting « any direct or indirect contribution in another farm. » However the French Conseil Constitutionnel rejected the attempt, and judged that said provision infringed entrepreneurial freedom and property rights. Certain legal authors wrote that in order to comply with the constitution, the law should have specified « significant contributions » instead.


  • Henceforth a pre-emption right of the SAFER in share deals

Before the law of October 13, 2014 the pre-emption right of the SAFER could only be used when real estate used for agricultural purpose or farming land was sold.
Thus, as part of a share deal, the SAFER had no pre-emptive rights, even in the case of a massive transfer of shares. These transfers only needed to be declared to the authorities.

Now the SAFER may acquire by means of a private sale contracted directly with the vendor shares of farm management company (for example: SCEA) or a landholding company (for example: GFA). Thus, a SAFER can acquire:
* all the shares in a farming company,
* all or part of the shares of a GFA or GFR.

In addition, the SAFER now benefits from a right of first refusal in the event of the sale of shares. However please note that such pre-emptive rights may only be exercised in the event of sales of the entire shares of a farming company (for example: SCEA) or a landholding company (for example: GFA), and it may lead to the installation of a farmer.


So-called « retrocession operations » involving the SAFER

As we have mentioned above the principal aim of the SAFER is to purchase (part 1) rural property to sell it on again (part 2). They can also acquire, in the aim to improve property structures, shares in agricultural companies allowing to possess or to enjoy the farming business or land (Article L.141-1, II, 3°).
However the grounds on which a SAFER can intervene must be based on the interests of maintenance and development of the farming fraternity or the local environment. They would not be allowed to buy land to put up a commercial center for example.


  • How does it work?

Instead of going through with part 1 (purchasing the property) to its completion the SAFER also has the right to substitute one or more beneficiaries, who will purchase all or part of the farm in their place.
To do so, the SAFER will sign crossed unilateral promises with both the seller and the purchaser. The latter will have no contractual relationship until the day of the final signature.
However and due to the status of the SAFER, there must also be a public call for candidacies. At the end of a period of 15 days the SAFER will designate the person to whom the farm will be awarded. If no candidacies were made the SAFER will designate the potential purchaser with whom was signed the unilateral promise to purchase. Said person will substitute his/herself in the final deed.
It’s what we could call reconveyancing.


  • What are the advantages and disadvantages of such an operation?

Two main advantages exist in this type of scheme:
Firstly, the company awarded the farm is by principal exempt from any application for farming permission, which can significantly speed up the completion of the transaction.
Secondly, the right of pre-emption of SAFER, of which is always source of shared uncertainty for the seller and the buyer, is automatically dismissed.

The main disadvantage to a simple and direct sale between the vendor and the purchaser is the intervention of a third party, i.e. the SAFER that has the power to buy and sell the estate.

Moreover, it cannot be excluded that after the candidacy procedure the SAFER chooses a third party (deemed a better candidate) who the farm would then be offered to.
Another disadvantage of this procedure is that the purchaser will subsequently be subject to the SAFER’s rules and regulations, such as the obligation to maintain the agricultural purpose of the property over a certain length of time, or to grant the SAFER a preferential right to purchase the property if it is sold within the next ten years.
We hope that this brief article relating to the specificities of vineyard transactions has been insightful.

Trust in France – Part 3

French Wealth Tax on Trusts

Our first article of this « Trust-Trilogy » started out by stating that in 2011, France defined trusts for taxation purposes only. The article also gave the main terminological basis of trust.
Our second article detailed this new taxation on estate planning (gifts and successions).

In this article we will look at the French wealth tax regime on the taxation of trusts.

Wealth tax (impôt de solidarité sur la fortune, ISF) provisions relating to property or rights held in trust, the sui generis levy due in the event said assets are failed to be declared and the reporting obligations are codified under articles 885 G ter, 990 J, AB 1649 CGI, 1736 and 1754 of the French General Tax code (Code Général des Impôts, CGI),

For more information on the concept of trust, settlor and beneficiary, see part 1 of our Trust Trilogy.

I. When are the assets held in trust subject to wealth tax?

A) Two types of trusts are excluded from wealth tax

  • Trusts whose beneficiaries are all qualified as charitable organizations
    Said trusts must be irrevocable and the trustee must be subject to the law of a State having concluded with France a double tax treaty to combat tax fraud and tax evasion.
    In such cases the assets placed in trust are not to be included in the taxable base for wealth tax.
  • Trusts settled by French residents specifically for retirement purposes are also excluded from this tax.

B) French territoriality rules

The principle of the current legislation is transparency.
Article 885 G ter of the CGI stipulates that property and rights placed in a trust, including their capitalized revenue, are taxable for wealth tax in the grantors name, as if they had never left his estate.

This rule makes the tax base irrelevant to the contents of the trust deed and thus the nature of the contract (whether it be revocable, irrevocable, discretionary or not).

Under France’s own rules (article 750 ter of the CGI), subject to international tax treaties (BOI-PAT-ISF-20-20), are subject to wealth tax:

  • The assets or rights placed in trust whose settlor or beneficiary that has become settlor are a tax residents of France, and thus regardless of where said assets or rights are situated, be it in France or abroad;
  • The assets or rights (excluding the financial investments referred to in Article 885 L of the CGI) situated in France having been placed in trust by a settlor or a beneficiary that has become settlor who are not tax residents in France.

When assets held in trust are subject to wealth tax they are taxed under the ordinary rules on wealth tax (scope, tax base, exemptions).
Thus, to give an example, taxpayers whose net fortune exceeds the threshold of ISF who have not been French tax residents during the five years preceding the year in which they become a French tax resident are only liable for wealth tax on the assets placed in trust that are situated in France; and this until December 31st of the fifth year following the year in which they have established their tax residence in France.

Reminder: the financial investments as defined under article 885 L of the CGI include all investments made in France by an individual and whose revenue of all kind, except capital gains, fall or will fall within the category of investment income (‘revenus de capitaux mobiliers’).
Are mainly concerned cash and term deposits in euros or currency; shareholder’s current accounts held in a company or a corporation that has in France its headquarters or place of effective management; bonds and bills of the same nature, bonds, shares and subscription rights issued by a company or corporation that has its headquarters in France or the centre of its effective management, life insurance policies or endowment contracts signed with insurance companies established in France.

However, are not considered financial investments:

  • shares representing sufficient influence in a company (in practice, are presumed equity securities, investments representing at least 10% of the capital of a company ; this threshold is judged globally at the level of the trust);
  • shares held by non-residents, in a French or foreign company/corporation, whose assets are primarily made up of real estate or rights in immovable property situated on French soil, in the proportion of the value of said property or rights in relation to the total assets of the company (second subparagraph of Article 885 L of the CGI);
  • shares owned more than 50% by non-residents (directly or indirectly owned) in corporations or organizations that own real estate or real estate rights in France (second subparagraph of Article 885 L of the CGI).

C) The impact of international tax treaties

The internal French rules seen above are subject to the provisions of international tax treaties, since Article 885 G ter of the CGI falls under the scope of double taxation avoidance where income and wealth tax are concerned.

Therefore in cases where double taxations are characterized, i.e. when a same person is subject to wealth tax in more than one State, double taxation avoidance rules are applied.

When the taxpayer is a French resident, the tax paid abroad is deducted from the French tax due. However the taxpayer must prove he/she actually paid foreign tax.

II. When the assets held in trust are subject to the sui generis levy

The main purpose of the new sui generis levy on trusts is to sanction the non-disclosure of assets placed in trust in respect to wealth tax.
This levy is not subject to the provisions of international conventions on double taxation avoidance with respect to income and wealth taxes.

A. Exclusion of two categories of trusts

By law two categories of trusts are excluded from the sui generis levy’s scope:

  • Irrevocable trusts whose sole beneficiaries are covered by Article 795 of the CGI and whose trustees are subject to the law of a State or territory who has concluded with France a double taw treaty on double tax avoidance.
  • Some trusts set up to manage pension rights.

B. Liable taxpayers

The taxpayers liable to the statutory levy owed on trusts are the settlors and the beneficiaries deemed to have become settlors.

C. The tax base

The base of the levy is made up of:

  • All assets and rights placed in trust whether they are situated in or outside France, including their capitalized income for the people who reside in France for tax purposes;
  • The assets and rights placed in trust and situated in France, including their capitalized income (other than financial investments under Article 885 L of the CGI), for people who are not French tax residents.

In the case where several beneficiaries are also the settlors of the trust and in the absence of express distribution of assets in the trust deed or any additional annexes, the assets of the trust will be deemed equally distributed between each of them.

The base of the levy, as wealth tax, is set on the net market value of the assets, rights and capitalized income contained in the trust on January 1st of the tax year.

The sui generis levy rate corresponds to the highest rate of wealth tax.

D. Exemption of assets, rights or products properly declared to wealth tax or who fall under section 1649 AB of the CGI

The levy is not payable in respect to assets, rights and capitalized income:

  • Included in the scope of wealth tax of a settlor or beneficiary having become a settlor liable to wealth tax and having declared and paid his/her tax properly. In this regard the non-declaration of assets or rights due to their exemption does not make them subject to the levy; this also applies to assets non-declared in accordance with tax treaties.
  • that appear on the specific statement related to trusts under section 1649 AB of the CGI, when the assets of the settlor or the beneficiary having become settlor falls below the wealth tax threshold.

The net value of the estate taken into account includes the assets, rights and capitalized income placed in trust.

The exemptions applicable for wealth tax, including those relating to the nature of certain assets (business assets, shares subject to lock-up, art …), do not apply.

E. The recovery of the sui generis levy

The levy must be paid by the trustee.

The trustee, the settlor and the beneficiaries, other than those having satisfied their own reporting obligations, and their heirs, shall be jointly and severally liable for payment.

The levy follows the same rules and penalties of those applied in the matter of death duties.

III. Tax reporting obligations

Two tax reports must be filed.
Firstly, a « factual » statement following the creation, modification or extinction of a trust, said statement contents the content of the trust.
And on the second hand, an annual return containing the net market value of the assets and rights held in trust and their capitalized income on January 1st of that tax year.

Penalties for non-compliance of reporting requirements
Breaches of reporting obligations are exposed to a fine of 10.000 € or, if higher, an amount equal to 5% of the total value of the assets, rights and capitalized income situated in and outside France, that are placed in trust.


TRUST – Part 2

Trust & estate planning


As you may recall our first article of this « Trust-Trilogy » started out by stating that in 2011 France defined trusts for tax purposes only. The article also gave the main terminological basis of trust.

Today let’s take a more detailed look at the new tax implications on your estate planning.


A./ Which transmissions are subject to tax?

All gratuitous transmissions, gifts/inheritances made via a trust are now subject to transfer duties. In France gift tax and inheritance tax both fall under the global denomination of ‘droits de mutation à titre gratuit’, also known as ‘DMTG’ for short.

The granted assets, including the income of capitalized assets placed in trust, are taxed at a net market value on the date of the transfer (i.e the date of the gift or upon death of the grantor).


B./ Which assets are subject to tax?

1. French territoriality rules

Article 750 ter of the French Tax Code (Code Général des Impôts or CGI for short) defines French territoriality rules in the event of a gratuitous transfer.

It is necessary to point out that French transfer duties apply, subject to double tax treaties.

In the event the settlor, or the beneficiary (who is also the settlor), are non-French tax residents transfer duties are due:

– On all the assets and rights held in trust, regardless of the country of their location, when the beneficiary is resident in France on the day of the transmission and has been for at least six years in the last decade;

– Or solely on the assets and rights held in trust that are located in France in all other cases.

2. The impact of international tax treaties

International tax treaties provide mechanisms to eliminate double taxation. Where inheritance and gift taxes are involved the right of taxation between the two States involved is based on two criteria: the location of the assets, or the State of domicile of the deceased, the donor or the heir.

Therefore when the assets held in trust are transferred in the cases foreseen by Section II, article 792-0 bis of the French Tax Code, the presence of the trust has no impact on the application of international double tax treaties where inheritances and donations are concerned.

When a juridical double taxation is revealed, that is to say when one person is taxable on the same property by more than one State the terms of elimination provided for by the conventions are applicable under the general conditions of common law.

In such a case, when France is the country of residence the tax paid abroad is due subject to the limit of the tax due in France. It is the responsibility of the taxpayer to prove payment of the foreign tax.

3. Presumption of ownership

The presumption of ownership foreseen by article 752 of the French Tax Code has been expressly extended to assets and rights held in trust.

Therefore the status applicable to securities has been extended to assets or rights held in trust to which the deceased had ownership, received income or performed any operation in relation to less than a year before his death.

Said assets or rights are presumed to be part of his estate, until proven otherwise.


C./ Obligations regarding tax returns

In the event of a gratuitous transfer of assets or rights held in trust, including the income of capitalized assets, they shall be reported on the general forms corresponding to their nature, i.e a « declaration de succession ou donation ».

These are the basic relevant forms filed upon death or after a gift.


D./ Terms of taxation

1. The transmissions qualified as gifts or as transmissions by death

The transferred assets, including their capitalized revenue will be taxed at their net market value at the date of the transfer under conditions of ordinary law. The tax rate will be that corresponding to the family tie between the grantor and the beneficiary.

If the grantor and the beneficiary were husband and wife or tied by a civil partnership the transmission upon the grantor’s death will be free of tax pursuant to article 796-0 of the French Tax Code.

2. The other types of transfers

The grantor’s death entails new taxation, whether the estate is transferred upon his death or whether it is foreseen for a later date.

a) The transmission of a determined share to an identified beneficiary

When the share is defined at the date of death transfer fees (death duties) are applied to said share and the tax rate is that corresponding to the family tie between the grantor and the beneficiary.

Thus for the liquidation of death duties the value of the assets, properties and rights held in trust and transferred upon death is added to the value of the rest of the estate.

Basically general taxation rules apply here. Equally the same rules of exemptions also apply. For example the exemptions foreseen by article 795 of the French Tax Code, that deals with transfers in favor of philanthropic organizations, apply.

b) The transmission of an overall share to one or several of the grantor’s descendants

Here we are faced with a situation where even though the share is defined at the time of death and globally is destined for all of the grantor’s descendants, it is not possible to share it individually between them.

In this case death duties are due on said share at the top marginal rate applicable in the direct line of lineal descent (said rate was increased to 45% for inheritances since July 31st 2011 by article 6 of the First Amending Finance Act of 2011, No.2011-900 of July 29th 2011) and no allowances are granted.

c) All other case transfers

This third case reflects in practice the following assumptions:

– Either the assets or rights remain held in trust after the grantor’s death without being attributed,

– Or the share, that is not individually defined, is attributed to several beneficiaries, some of which are not the grantor’s descendants.

In these situations taxation will occur at the highest rate of the installment table III of article 777 of the French General Tax Code.

Let’s take an example:

The grantor of a trust who is a French non-tax resident dies on January 10th 2012. In 2010 he created three trusts whose characteristics are as follows:

– Trust A: a revocable trust whose beneficiaries are the grantor and one of his two sons. The son is a French tax resident;

– Trust B: a discretionary irrevocable trust whose beneficiaries are the two sons of the grantor, both of which are French tax residents;

– Trust C: a discretionary irrevocable trust whose beneficiaries are for half the two grandsons of the grantor « alive on the 1st of January 2015 ».

The trustee of the trust retains full discretion to dispose of the other half of said trust.

The grantor’s death entails the following tax liability:

– Death duties on the net value of his whole estate which comprises the net value of trusts A & B,

– Death duties on the net value of trust C: at a rate of 45% on one half due to the fact the number of the beneficiaries was not defined (« grandchildren alive on January 1st 2015 ») & at the rate of 60% on the balance.


E./ Summary of the different hypothesis’s of taxation

The nature of the transfer Taxation
Death or donation/gift Death duties are due at a rate dependent on the degree of relationship with the deceased
Neither death nor donation:



– The share and the beneficiary are determined

– The share is determined but it is destined globally to several descendants of the grantor

– other cases:

* the trustee of the trust falls under the law of a non co-operative State or Territory ; or the grantor was domiciled in France when he created the trust after May 11th 2011

*Assets remain placed in trust after the grantor’s death without having been attributed

Death duties are due at a rate dependent on the degree of relationship with the deceased

45 %

60 %


60 %


60 %


In our third and final article we will take a look at the wealth tax issues related to trusts.

Exit tax

Leaving France?

Be cautious, you may be subject to exit tax on your intangible personal property…


In 2011 an exit tax was put in place to curb tax relocations before the disposal of financial investments. Amended in 2014, the taxpayers concerned are those transferring their tax residence outside France as of 3 March 2011.

Exit tax system

When a taxpayer was a French tax resident for at least six of the ten preceding years, and transfers his/her tax domicile abroad this entails tax and social security contributions on:

  • unrealized gains arising on:
    • either direct or indirect investments, of at least 50% of the share capital of the company,
    • direct investments in one or more companies (including OPCVM’s/UCITS), whose total value exceeds € 800,000
  • deferred capital gains,
  • claims on an earn-out payment.

 Are not subject to exit tax:

  • gains realized on real estate,
  • shares of open-ended investment companies (SICAV) ;
  • shares or securities of companies predominantly comprised of real estate (including SCI’s) ;
  • shares or securities referred to in article 244 bis A, I-3 of the French general tax code (CGI), particularly:
    • shares, securities or other rights of unquoted real estate companies, whether said companies are subject to corporation tax or not,
    • and shares, securities or other rights of real estate listed companies when the taxpayer owns directly or indirectly at least 10% of the company’s capital.

And many more…


A tax-deferral is automatically granted when the move is made to a member state of the European Union or a State that has concluded a tax assistance agreement with France. And if the move is made to another country, the taxpayer may request a tax-deferral providing certain financial safeguards are ensured.

Said tax-deferral is then terminated upon sale, redemption, or repayment of the respective securities.

Retention period

Capital gain tax is relieved or can be recovered if the taxpayer proves he/she still owns the investment(s) after a period of eight years after the move abroad. However social security contributions remain due.

For all moves abroad after December 31st, 2013, capital gains tax and social security contributions are exempt or refunded if the taxpayer can prove he/she still owns the investment(s) after a period of fifteen years after the move abroad.

Investment of shares subject to exit tax in a new company

Before doubts existed when it came to the tax neutrality of such a transfer.

New article 167 bis of the CGI provides us with clearer wording: the investment of securities, subject to exit tax after departing France, does not terminate tax-deferral when said deferral was granted under the conditions of article 150-0 B of the CGI (contribution of shares in a company subject to corporation tax, « offre publique », merger, division …) or postponed under article 150-0 B ter of the CGI (contribution to a company controlled by the contributor).

Gift of shares subject to exit tax

The law in place up until 2013 provided that a donation of shares subject to exit tax entailed the end of tax-deferral, unless the taxpayer could prove the gift was not solely granted for tax purposes only.

On July 12th, 2013, the French Conseil d’Etat judged that this requirement was contrary to the freedom of establishment within the European Union (case N° 359995).

The law was therefore amended: a taxpayer leaving France to settle in a European Union member country (or a country in the European Economic Area which has entered into a tax agreement with France) has no longer to prove the non-tax purpose of the donation.

However, the probationary requirement is maintained for those who leave to settle in another state and said requirement has even been made heftier: the taxpayer must demonstrate that the gifts main motivation was not to evade exit tax.

Double-taxation avoidance

When a taxpayer sells investments subject to exit tax after leaving France, and pays relevant capital gains tax in his/her new state of residence, the foreign tax is deducted in France as follows:

  • First of all the foreign tax is deducted from the social charges resulting from the exit tax,
  • Secondly the remainder shall be credited against the income tax resulting from said exit tax.

 Depreciation of the shares

In its initial version article 167bis of the CGI adapted exit tax to the effective gain made by the taxpayer transferring his/her tax resident outside France.

From now on, the text also allows to deduct the realized loss on a sale of securities subject to exit tax on the capital gain realized on the sale of other securities subject to exit tax. Said deduction is allowed on the sale of investments representing more than 25% in a French company or on future capital gains achieved after returning to France.

Equally, a capital loss realized before, or after leaving France on the sale of securities representing over 25% in French companies is deductible from any exit tax relating to investments sold within 10 years.

Tax reporting obligations in the event of exemption or refund

The taxpayer must now declare the nature and date of the event triggering an exemption or refund of exit tax and, on the same occasion, expressly request relief or restitution. This claim must be made within the year of said event and within the period stipulated in article 175 of the CGI (deadline for tax returns).

For more details on your tax reporting obligations upon departure, and then on a yearly basis; or if you have any question regarding penalties in case of non-compliance please do not hesitate to contact us.

New measures for non-French resident taxpayers on their French income

The French administration currently applies specific measures for non-French residing taxpayers on their income of a French source.

Currently said measures, that are thought to be unjust, are under the spotlight of the European Commission and the European Court of Justice.

2015 may bring advantages for non-residents, and claims for unrightfully paid tax may be filled for 2012 and 2013 – but you must act quickly!  

Let’s take a look.       


  • Harmonization of capital gains tax rate for non-residents

Up until now taxpayers were treated differently dependent on their state of residence.

French residents, EU and EEA residents were taxed at a rate of 19%, whereas non EU/EEA residents were subject to a higher rate of 33,33%.

After the French Supreme Court (Conseil d’État) rendered a decision mid October 2014 highlighting this difference, judged as restrictive of the free movement of capital, the 2014 Amended Finance Bill changed article 244 bis A of the French General Tax Code.

Rates are now harmonized for residents and non-residents at the flat rate of 19%, however taxpayers of NCST’s (Non-Cooperative State or Territory) remain excluded.

Note: Even though it is not clearly expressed this situation is believed to cover not only individuals selling properties directly but also those selling properties via SCI’s.

Reclaim: For any overpaid tax in years 2012 and 2013 you may place a claim to the French tax authorities before the end of this year.


  • Reclaim on social contributions paid by non-residents

Since August 2012, non-French tax residents have been made liable for the social contributions on French income, i.e capital gain or rental income.

For example previously, such taxpayers were merely liable for capital gains tax, and since August 2012 the basic gross tax rate for EEA residents has been 34.5%.

However a case is currently pending before the European Court of Justice (Aff C-323/13 – Mr de Ruyter), whereby the application of French social contributions to non-residents may be put an end to.

They are considered contrary to the EU principle of free movement, and unjust due to the fact that non-residents do not benefit from French social protection.

France may be condemned to reimburse some 344 million euros for the year 2012.

Reclaim: Even though the CJEU has not rendered its decision yet, EU residents who paid social contributions in France on rental income or on the sale of their property should be able to claim back the amount paid from the French tax authorities.

For social contributions paid on capital gains taxpayers can make a claim up to the 31st of December of the year following the year in which the contributions were paid (Decision of the Administrative Court of Paris).

For tax paid in 2012 the deadline would have been the 31st of December 2013, and for tax paid in 2013 the deadline is the 31st of December 2014. However for 2012 and without any guidelines from the French administration it is believed claims could still be made before the end of 2014 to ensure any chance of recovery.


  • Announcement to suppress tax representatives

Non-French tax residents subject to French income must currently, under certain circumstances appoint a tax representative who will be jointly liable on said tax until its prescription date.

Some legal entities were granted licenses by the French administration as professional tax representatives. However their services came at a price, a price French tax-residents did not have to pay.

Portugal was condemned on this front by the European court in 2011.

In anticipation of a French condemnation and to comply with the law of the European Union, French amending Budget Act for 2014 proposes to remove the requirement for resident taxpayers in the European Union, and in some cases in the European Economic Area (EEA) to appoint a tax representative in France.

This follows a formal request sent to France from the European Commission to cancel this legislation.

From January 1st 2015 tax representatives for capital gains in France is likely to be canceled for taxpayers residing in the EU or in the EEA.

However we must await the final adoption of the law.

The same suppression is also implemented for income tax, wealth tax, corporate tax and the 3% tax.

            A lot to take into consideration – if you need guidance please seek our advice.

Trust in France – Part 1

Trust is a widespread institution in foreign legal systems, especially in Anglo-Saxon law, but unknown in French civil law.

            However in 2011, France defined trust for tax purposes only.


Trusts are characterised in so much as that property is divided between the legal ownership (‘propriété juridique’ given to the trustee of the trust who becomes the legal owner of the transferred assets) and the equitable interest (i.e virtual property residing in the right or title to assets, property or rights held for the beneficiary by the trustee in whom resides the legal title).

This property split is not to be confused with what we know in France as the ‘demembrement de propriété’ between usufruct and bare ownership.

Quick reminder: The right of ownership gives the owner three types of prerogatives. If we take the example of a property, these prerogatives consist of the right to use the property (i.e. to live in it), the right to receive income from said property (i.e to rent it out), and the right to dispose of the property (i.e. to sell it).

However an owner can divide these prerogatives into two sets: on the one hand what’s called « usufruct » which includes the right to use the property and receive its income, and on the other what’s called the « bare o­wnership » which includes the right to dispose of the property.

Therefore the right of ownership is the combination of the usufruct and the bare ownership.


In 2011, France defined trust for tax purposes only. Article 792-0 bis of the General Tax Code (Code Général des Impôts) defines trust as all legal relationships created under the law of a State other than France by a person called ‘grantor’ (settlor), inter vivos or mortis causa, in order to place assets or rights under the supervision of a ‘trustee’, in the interest of one or more ‘beneficiaries’ or to achieve a specific goal.

Are therefore considered to be trusts all legal relationships meeting this definition, regardless if they effectively go under the name of ‘trust’ and also regardless of their characteristics (whether revocable or not, discretionary or not, with or without legal personality, etc.).

On the other hand do not meet the definition of article 792-0 bis of the CGI:

  • Trusts established by a company or group of companies such as trusts established by companies and dedicated to the management of employee saving schemes or stock option plans.
  • Trusts called « unit trusts » that meet the definition of UCITS, Undertakings for Collective Investment in Transferable Securities.


The Grantor/Settlor

Article 792-0 bis of the CGI stipulates that the grantor of a trust is the individual that created it.

This definition allows us to discern the economic reality of a trust whatever its legal appearance or name. In practice, the aim is to determine the ‘real’ settlor of the trust in the event the settlor, sole entity named in the deed of trust, is an entity (….) or an individual acting professionally designated on behalf of the real owner of the assets placed directly or indirectly through one or more corporations, in the trust.

Furthermore the same article foresees taxation of accumulation trusts upon death of the settlor, and then in some cases upon death of the beneficiaries deemed settlors. Said taxation of the assets remaining in the trust takes place upon each change of beneficiary (for example, when the children of the initial beneficiary become replacement beneficiaries upon death of their parents).


The Beneficiary

The tax beneficiary of a trust means the person (one or more) designated to receive the income of the trust made by the administrator (trustee) and/or to receive the capital value of the property or rights of the trust during the life of the trust or at its end.

This definition does not exclude the grantor from also being a beneficiary of the trust, especially in the situation of an ‘inter vivos trust’.

 In part 2 we will address trust and estate planning here in France.