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French Life Insurance “101” – For U.S. Persons, Run Away

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French Life Insurance “101” – For U.S. Persons, Run Away

An individual takes out life insurance in order to provide for his heirs and to obtain peace of mind. Tax treatment for the individual during life and the heirs is straightforward when everyone resides in one country. But when a life insurance policy is written in France and the insured or the heirs are U.S. citizens or residents, what the policy holder, his estate, or the beneficiaries may encounter is anything but peace of mind. To their chagrin, each may find that he or she is in the crosshairs of contrary laws in two countries resulting in sub-optimal tax results. In their article, Sophie Borenstein, of attorneys Klein Wenner in Paris, Neha Rastogi, and Stanley C. Ruchelman discusses the French and U.S. tax rules applicable to a French life insurance policy. Grown men have cried over less complicated matters.

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French Reporting Obligations for Foreign Financial Trusts

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French Reporting Obligations for Foreign Financial Trusts

In general, French information reporting obligations regarding foreign financial trusts are broad, the scope of reporting persons and transactions are broader, and the risk of penalties is severe. By definition, foreign financial trusts are formed under foreign law, have only non-French individuals as settlors and beneficiaries, and in France own only financial investment assets. French reporting obligations can be a burden for the trustees of these trusts and foreign trustees often are not aware of the full scope of the French rules. Even when the rules are known by the trustee, they are ambiguous and imprecise, leading to legal uncertainty. The problem often affects U.S. individuals who invest in French financial assets through trusts upon the recommendation of U.S. asset managers or private bankers. Programs to issue U.S. Dollar Denominated Medium-Term Notes (“U.S.D.M.T.N.’s”) represent a major source of U.S. Dollar liquidity for French banks. In their article, Benoit Bailly, a partner in the Paris office of CMS Francis Lefebvre, and Carl Meak, an associate in the Paris office of CMS Francis Lefebvre, address the labyrinth of reporting obligations that exist in the guidelines issued by French tax authorities. They point out that several rulings of the the Service de la sécurité juridique et du contrôle fiscal appear to be helpful. Nonetheless, more work is left to be done.

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French Tax Residence, Income Tax Treaties and Newcomers Regimes: Where Does France Stand?

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French Tax Residence, Income Tax Treaties and Newcomers Regimes: Where Does France Stand?

The determination of an individual’s tax residence is a delicate exercise, combining a review of factual elements in light of different sets of criteria and rules. Most jurisdictions other than the U.S. impose tax solely on the basis of residence. Hence, a definition of tax residence is required. French domestic tax law adopts a single definition of tax residence for personal income and inheritance taxes, relying on several alternative criteria. The matter of residence also can be looked at under a relevant income tax treaty. France has in effect a network of more than 120 income tax treaties. Michaël Khayat, a Partner of the Arkwood Law Firm, Paris, and Edouard Girard, an Associate of the Arkwood Law Firm, Paris, explain the criteria for determining tax residence under French domestic tax law and to resolve a dual resident situation under the O.E.C.D. Model Income Tax Treaty. They then address recent cases under which tax authorities challenged application of an income tax treaty for an individual claiming benefits under a favorable newcomer regime in a treaty partner jurisdiction.

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Key Features of the New-Fangled Belgium-France Income Tax Treaty

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Key Features of the New-Fangled Belgium-France Income Tax Treaty

After nearly two decades of negotiations, Belgium and France signed a new Income Tax Treaty in November 2021. The new treaty is in line with the latest O.E.C.D. standards, incorporates the applicable provisions of the Multilateral Instrument, and addresses salient tax issues for taxpayers engaging in cross-border transactions involving the two countries. Key aspects of the New Treaty relate to closing loopholes, expanding coverage to include wealth taxes, and retaining favorable treatment for Belgian investors in French S.C.I.’s. Werner Heyvaert, a partner at AKD Benelux Lawyers, Brussels, and Vicky Sheikh Mohammad, a tax lawyer at the same firm, explain all.

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Planning for Nonresident Investment in French Real Estate – The Choice of Company Matters

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Planning for Nonresident Investment in French Real Estate – The Choice of Company Matters

Among wealthy Europeans, it is common for those who are not French to own a secondary residence in France, and to do so through a company. Two recurring questions are posed to a French tax adviser representing a non-French client. Should the company be French or foreign? Should the company be subject to corporate tax or not? Sophie Borenstein, a Partner in the Paris office of Klein Wenner explains the variables that must be considered when providing answers. Some work in one set of circumstances and others work in other circumstances. Good advice must be tailored to the anticipated use of the property.

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French Administrative Pronouncements on D.A.C.6

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French Administrative Pronouncements on D.A.C.6

In their article entitled “French Administrative Pronouncements on D.A.C.6,” Mallory Labarriere and Anne-Lise Chagneau of Nexa Avocats, Paris, have prepared the ultimate guide to D.A.C.6 rules in France.

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French Treatment of Foreign Trusts

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French Treatment of Foreign Trusts

The French Trust Register was introduced in December 2013 by a law enacted to stop tax fraud and serious economic and financial crimes. In October 2016, the French Constitutional Court ruled that public access to the Trust Register was unconstitutional. In the period since that decision, French authorities have issued two rulings allowing a broad class of persons to gain access to trust data. including tax officers, customs officials, professionals having compliance duties to combat money laundering and terrorist financing, journalists, and N.G.O.’s. Dimitar Hadjiveltchev, Partner, Adea Meidani, Counsel, and Loïc Soubeyran-Viotto, Associate, all of CMS Francis Lefebvre Avocats in Paris, address recent events regarding French tax treatment of foreign trusts and beneficiaries. They begin with the trust register – who must report, what must be reported and who have access – and move on to explain the myriad of taxes that may be imposed on trusts, settlors, and beneficiaries including income tax on distributions, inheritance and gift taxes, and real estate wealth tax.

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New Tax Treaty Between France and Luxembourg: French Tax Implications for Investors

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New Tax Treaty Between France and Luxembourg: French Tax Implications for Investors

France and Luxembourg signed a new double tax treaty on income and capital in late March.  Ratification by the end of the year is anticipated.  The new treaty reflects the current post-B.E.P.S. environment.  Among other things, the residence definition is tightened, the test for the existence of a permanent establishment is loosened, real estate funds face higher withholding tax, a credit method is adopted to avoid double taxation.  Christophe Jolk, Attorney at Law, Paris, explains the implications for investors.

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Individual, Corporate, and Trust News from France

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Individual, Corporate, and Trust News from France

The end of each year in France is marked by a fiscal legislative process to amend the current year’s finance law and to draft the law for the upcoming year.  The year 2017 was no exception.  Changes will be made to wealth tax, tax brackets, tax on investment income, corporate tax rates, and the 3% additional tax on dividend distributions (retroactively).  Fanny Karaman and Nina Krauthamer explain the tax changes.

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Insights Vol. 4 No. 6: Updates and Tidbits

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This month, Beate Erwin, Astrid Champion, and Nina Krauthamer look briefly at several timely issues, including (i) the return of foreign certified acceptance agents to the passport certification process in connection with the issuance of U.S. I.T.I.N.’s, (ii) the effect of the French election on French tax reform proposals, and (iii) demands for the U.S. to provide the same type of information as is supplied to I.G.A. partner countries.

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Insights Vol. 4 No. 4: Updates & Other Tidbits

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Insights Vol. 4 No. 4: Updates & Other Tidbits

This month, Astrid Champion, Nina Krauthamer, and Jennifer Lapper look briefly at several timely issues, including (i) instructions for Form 8975, Country-By-Country Report, and Schedule A, Tax Jurisdiction and Constituent Entity Information, for U.S.-based multinationals, (ii) tax breaks for midsized companies in China, (iii) an executive order calling for review of all I.R.S. regulations issued in 2016, with a view to their withdrawal, and (iv) the French Constitutional debate over penalties for nondisclosure of trust assets.

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Insights Vol. 4 No. 2: Updates & Other Tidbits

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Insights Vol. 4 No. 2: Updates & Other Tidbits

This month, Astrid Champion and Nina Krauthamer look briefly at several timely issues, including (i) the expansion of the European Commission’s attack on illegal State Aid to the French multinational group Engie (formerly G.D.F. Suez), (ii) the request for review by the French Constitutional Court of the penalties imposed under Article 1736, IV bis of the French Tax Code, regarding the failure to disclose a connection with a foreign trust, and (iii) the decision of the European Commission in World Duty Free Group, which affirms the criteria for judging whether a measure by a Member State is selective in relation to certain companies and not others and, for that reason, constitutes illegal State Aid. 

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News on the French Front: Tax Law Changes for Corporations and Individuals

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News on the French Front: Tax Law Changes for Corporations and Individuals

In France, the enactment of new tax law provisions requires a multi-faceted procedure involving many steps carried out by the government, two houses of parliament, specialized committees, a conference of both houses of parliament, and a review by the French Constitutional Court.  Once the full procedure is completed, the new law may be effective retroactively.  Many changes in tax law were made in 2016, including the adoption of employee withholding tax, changes to the free share regime, a reduction to the corporate tax rate, extension of exemptions to the corporate tax on the payment of dividends, and the parent-subsidiary regime.  Fanny Karaman and Astrid Champion discuss these and other changes.

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French v. U.S. Share-based Compensation Plans: A Comparative Analysis

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French v. U.S. Share-based Compensation Plans: A Comparative Analysis

Share-based compensation incentives are commonly used by corporations worldwide.  Employees defer income or realize income immediately at a low value, and the employer accepts a deferred or reduced deduction for compensation expense.  Three or four key moments in the life of a stock-based compensation plan can be identified as taxable events: (i) the grant of share-based compensation, (ii) the exercise of an option, (iii) the “vesting” of the underlying shares, and (iv) their subsequent sale.  Fanny Karaman and Stanley C. Ruchelman explore tax treatment in France and the U.S. in the context of a French employee who participates in a French plan and is then assigned to the U.S.

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Usufruct, Bare Ownership, and U.S. Estate Tax: An Unlucky Trio

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Splitting ownership into usufruct and bare ownership is a common estate planning technique in several civil law countries.  However, this planning technique may have adverse tax consequences when the holder of the bare legal title resides in the U.S.  Fanny Karaman and Stanley C. Ruchelman explain the civil law inheritance tax benefits and the pitfalls that are encountered in the U.S.

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European Registration & French Tax Law Create Pitfalls for U.S. Trusts

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Events that have taken place in the E.U. during July confirm that a U.S. person who establishes a U.S. domestic or foreign trust for the benefit of a European resident, may face significant pitfalls regarding confidentiality and tax.  While trusts historically constitute a testamentary dispositive tool in common law countries, the recent UBS and Panama Papers scandals have shed a harsh light on these instruments.  At the level of the E.U., enhancements to existing anti-money laundering provisions have been floated.  The legislation would eliminate certain exceptions to reporting.  In France, adverse tax rules already exist for trusts, settlors, and beneficiaries that fail to take into account fundamental differences among trust instruments.  In addition, wealth tax issues and public disclosure issues must be considered.  Fanny Karaman and Stanley C. Ruchelman explore these and other problem areas.

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French Life Insurance Policies: A U.S. Income Tax Perspective

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The world of available insurance policies on an individual’s life is broad and complex within the context of only one country.  Add a foreign element, and one is faced with a legal and tax labyrinth.  Fanny Karaman and Stanley C. Ruchelman explain how a typical French life insurance policy is taxed for a policy holder having contacts with both France and the U.S.

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European Commission, State Aid, and Tax Transparency – More Steps in One Direction

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The EDF experience in France demonstrates that State Aid in Europe comes in many forms, and it can be harshly treated when discovered. Beate Erwin looks at the case against France’s main electricity provider and other developments in the European Commission’s attack on State Aid through private tax rulings. She finds that the result in the EDF case is not an anomaly.

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Voluntary Tax Regularization: A U.S. and French Comparison

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In the U.S., "the Tax Division is committed to using every tool available in its efforts to identify, investigate, and prosecute" noncompliant U.S. taxpayers who would use secret offshore bank accounts. France has also joined in the effort to combat international tax avoidance, tightening up its rules by allowing taxpayers to voluntarily declare assets held abroad. Nicolas Melot, Fanny Karaman, and Sheryl Shah explore the differences in France and the U.S. in the disclosure programs that cover undisclosed foreign financial accounts.

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Expatriation the Transatlantic Way: Overview of the French and the U.S. Regimes

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Over the past years, both France and the United States have recorded a growing number of individuals expatriating as a tax planning device.  In order to discourage these tax exiles, the French government introduced an exit tax in the late 90’s. The regime was later invalidated by the C.J.E.U. and reborn, in modified form, in 2011. Like France, the U.S. is no longer a tax paradise for those wishing to expatriate. In this article, guest author Nicolas Melot of Melot & Buchet, Paris, and Fanny Karaman compare the French and American exit tax regimes by giving an overview of their respective scopes and effects. For both U.S. and French purposes, the exit tax constitutes an important element in determining whether or not to expatriate.&

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