The application of Article 123 bis of the CGI to foreign trusts: insights on the CAA Paris ruling of March 19, 2025.
On March 19, 2025, the Paris Administrative Court of Appeal issued a major ruling regarding the application of Article 123 bis of the General Tax Code (CGI) to foreign trusts. This decision clarifies the impact of administrative assistance agreements and the evidentiary requirements imposed on taxpayers. Here’s a breakdown of the key lessons from this case law.
The impact of administrative assistance agreements
The French tax administration uses international administrative assistance mechanisms to access the tax information of taxpayers with assets abroad. However, the Paris Administrative Court of Appeal specified the temporal limits of this assistance based on agreements concluded with Guernsey and the Cayman Islands in 2009.
A regime not applicable to the years 2010 and 2011
The administration had applied a flat-rate regime for the years 2010 and 2011, arguing that the lack of sufficient documents justified this approach. However, the Court invalidated this method, reminding that the administrative assistance agreements that came into effect in 2010 had to be utilized before any flat-rate taxation.
Validation of taxation for prior years
For the fiscal years 2006 to 2009, the Court confirmed that the administration could apply flat-rate taxation rules due to the absence of information exchange mechanisms. The valuation of assets held by the trust then constituted a sufficient legal basis for taxation.
Increased evidentiary requirements for taxpayers
Article 123 bis of the CGI establishes a presumption of taxable income for structures located in low-tax jurisdictions. However, taxpayers can contest this presumption by providing contrary evidence.
Insufficient supporting documents
In this case, the Court found that the evidence provided by the taxpayers was not sufficient to overturn the tax presumption. To be admissible, the evidence must be:
- Precise: it must clearly identify the actual income received.
- Complete: partial presentation of accounting documents is not sufficient.
- Verifiable: it must be corroborated by credible and auditable documents.
Consistency with previous case law
The ruling of March 19, 2025, continues the trend of previous decisions regarding the application of Article 123 bis of the CGI to foreign trusts.
The status of irrevocable and discretionary trusts
Previous case law (CAA Paris, June 24, 2020) established that irrevocable and discretionary trusts could not be systematically requalified as assets held by the beneficiary. Although this issue is not central to the 2025 decision, it remains a key point in evaluating international tax structures.
The influence of administrative assistance agreements
The Court emphasized the importance of these agreements, confirming that the administration could not resort to flat-rate taxation as long as it had means to obtain precise information about the relevant trusts.
Conclusion: a key ruling for the taxation of foreign trusts
The ruling of March 19, 2025, represents a significant advancement in the taxation of foreign trusts and the application of Article 123 bis of the CGI. It notably highlights:
- The crucial role of administrative assistance agreements, which modify the taxation method for taxpayers.
- The elevation of evidentiary requirements, forcing taxpayers to provide detailed and auditable evidence.
- Compliance with tax procedures, ensuring a balance between the administration's prerogatives and the protection of taxpayers.
Given the complexity of these tax rules, it is essential for affected taxpayers to seek assistance from tax experts to secure their situation and avoid any risk of tax requalification.