Foreign Trusts and Foundations: French Wealth Tax After 2026 Rulings

I. How does France attach trust assets to its wealth tax?

A. A broad tax definition that also captures family foundations

French civil law does not recognise the trust, but French tax law has addressed it since the amending finance law of 29 July 2011. Article 792-0 bis of the French General Tax Code (Code général des impôts, CGI) provides a functional definition: a trust means "l'ensemble des relations juridiques créées dans le droit d'un Etat autre que la France par une personne qui a la qualité de constituant [...] en vue d'y placer des biens ou droits, sous le contrôle d'un administrateur, dans l'intérêt d'un ou de plusieurs bénéficiaires ou pour la réalisation d'un objectif déterminé" [all legal relationships created under the law of a State other than France by a person acting as settlor, in order to place assets or rights under the control of an administrator, for the benefit of one or more beneficiaries or for a specific purpose] (CGI, art. 792-0 bis, I, 1). The definition turns neither on the label of the structure nor on whether it has legal personality. It rests on three elements: a settlor, a trustee who controls the assets, and beneficiaries or a defined purpose.

Family foundations are within scope. This functional approach explains why entities with legal personality, such as Swiss or Liechtenstein family foundations, are treated as trusts when they display the relevant features. In the case decided on 28 May 2026, the treatment of the Joseph Chaffard foundation, a Swiss law family foundation, as a trust was not even disputed before the Supreme Court: the taxpayers accepted it and focused their case on the extent of the tax base (Cass. com., 28 May 2026, No. 25-12.326). A family holding rights in a foreign foundation would therefore be unwise to assume that the absence of the word "trust" in the articles is enough to escape the regime. The French tax authorities look at the substance of the legal relationships, not at their label.

Settlor and deemed settlor. The statute defines the settlor as the individual who created the trust or, where it was set up by a professional or a legal entity, the individual who transferred assets into it (CGI, art. 792-0 bis, I, 2). More importantly, it shifts settlor status: a beneficiary is deemed to be a settlor (deemed settlor) in respect of assets held in a trust whose settlor had died by the time the 2011 law came into force, and in respect of assets that have already borne French gift or inheritance tax under the same article (CGI, art. 792-0 bis, II, 3). The settlor's death therefore does not eliminate the taxpayer; it moves the tax burden to the beneficiaries.

B. From ISF to IFI: a narrower base, a penalty levy that remains

Under the former wealth tax (impôt de solidarité sur la fortune, ISF), former Article 885 G ter of the CGI included assets held in a trust, together with accumulated income, in the estate of the settlor or deemed settlor at their net market value on 1 January of the tax year. All trust assets were caught: securities portfolios, cash, real estate and shareholdings. This is the provision applied in both 2026 rulings, which concern tax years before 2018.

The IFI only targets real estate. Since 1 January 2018, the real estate wealth tax (impôt sur la fortune immobilière, IFI) has replaced the ISF. Article 970 of the CGI follows the same architecture as former Article 885 G ter but now only covers the assets listed in Article 965, namely real estate and shares in companies to the extent their value reflects real estate (CGI, arts. 965 and 970). Otherwise the wording is almost identical: the assets are included, as the case may be, in the estate of the settlor or of the deemed settlor. Irrevocable trusts whose sole beneficiaries are public-interest bodies, and whose trustee is subject to the law of a State that has an administrative assistance agreement with France, remain outside the scope.

The Article 990 J levy, a sanction for non-reporting. Where the real estate held in trust has not been included in the IFI return of the settlor or beneficiary, nor reported under the trust-specific reporting rules, Article 990 J of the CGI imposes an annual levy at the top IFI rate, i.e. 1.50% (CGI, art. 977, 1). For persons domiciled in France, it applies to real estate located in France or abroad; for others, only to French real estate. The trustee must file and pay the levy by 15 June each year; failing that, the settlor and beneficiaries are jointly and severally liable (CGI, art. 990 J). The levy comes on top of the trustee's reporting obligation under Article 1649 AB of the CGI, breach of which triggers a fixed penalty of EUR 20,000 (CGI, art. 1736, IV bis).

II. Contributive capacity: a filter in appearance, an extension tool in reality

A. The constitutional basis: a rebuttable presumption of attribution

The Article 885 G ter regime was referred to the French Constitutional Council (Conseil constitutionnel) in 2017. The claimant, the settlor of an irrevocable discretionary trust, argued that he was being taxed on assets of which he had been divested. The Council held that, in creating the ISF, Parliament intended to tax "la capacité contributive que confère la détention d'un ensemble de biens et de droits" [the contributive capacity conferred by holding a set of assets and rights]. It then analysed the regime as a presumption attaching trust assets to the settlor's estate, justified by the objective of combating tax fraud and evasion and by the inherent difficulty, with trusts, of identifying who derives contributive capacity from the assets (Cons. const., 15 Dec. 2017, No. 2017-679 QPC).

An interpretive reservation that puts the burden on the taxpayer. The Council upheld the provision subject to a reservation: the statute cannot prevent the settlor or deemed settlor from proving that the assets confer no contributive capacity on them, "résultant notamment des avantages directs ou indirects" [arising in particular from the direct or indirect benefits] they derive from them. It added, however, that such proof cannot rest solely on the irrevocable nature of the trust and the trustee's discretionary powers. Two consequences follow. The presumption is rebuttable, but the taxpayer bears the burden of rebutting it. And a purely legal argument drawn from the trust's structure is not enough: the taxpayer must show, as a matter of fact, the absence of any benefit.

B. The 28 May 2026 ruling: contributive capacity is a threshold, not a measure

In the Swiss foundation case, the couple had received funds from the foundation since November 2005 "for cash flow purposes". They first argued that contributive capacity must be "full and complete", which was not the case since the articles only provided for allocations in strictly listed cases of necessity, subject to a decision of the foundation board. The Supreme Court rejected the argument: the Court of Appeal was entitled to infer from the payments received, which were not shown to fall within the foundation's purposes, that its assets gave the taxpayers contributive capacity (Cass. com., 28 May 2026, No. 25-12.326, para. 10).

Capitalising only the amounts received is rejected. In the alternative, the couple proposed a reduced base, determined by capitalising the sums they had actually received. The argument had economic logic: real contributive capacity would be measured by what one can actually use. The Court rejected it in terms of principle. Under Articles 885 G ter and 792-0 bis, the tax is "assis sur l'ensemble des actifs du trust, lorsqu'ils confèrent une capacité contributive aux contribuables, que ceux-ci en aient disposé ou non" [levied on all the trust assets where they confer contributive capacity on the taxpayers, whether or not the latter have drawn on them] (same ruling, para. 15). Published in the official reports, this statement is meant to set the rule.

Our reading. Contributive capacity works as a switch, not as a dial. Either it does not exist and no asset enters the base, or it exists and every asset enters it. The 2017 reservation, which could have looked like a safeguard, thus becomes an extension tool as soon as a single flow is identified. The tipping point lies in how distributions are characterised. A payment consistent with the statutory purposes, such as assistance in a case of necessity foreseen by the articles, can be defended as not revealing free use of the assets. A payment for cash flow, comfort or investment, not shown to be linked to those purposes, reveals overall contributive capacity.

C. What the ruling leaves open

Several grey areas remain. The first concerns dormant structures: a trust or foundation that has never made any distribution, nor granted any indirect benefit such as the use of a property, a loan or a guarantee, remains the natural ground for the rebuttal reserved by the Constitutional Council. The second concerns unnamed or merely potential beneficiaries, whose entitlement depends solely on the trustee's discretion: case law has yet to specify when they can be regarded as having current contributive capacity. The third relates to timing: in the case decided, the audit covered 2007 to 2014, but the Court expressly validated the inclusion of the assets only for 2012 to 2014 (para. 10), for procedural reasons the ruling does not explain.

A solution that carries over to the IFI. Article 970 of the CGI reproduces, for the IFI, the structure and wording of former Article 885 G ter. The Court's reasoning, built on the combination of such a provision with the Article 792-0 bis definition and on the Constitutional Council decision, in our view applies fully. The only difference lies in the base, limited to real estate held directly or through companies. A family trust whose assets include a residence in France, or interests in real estate companies, will therefore expose its settlors and beneficiaries to IFI on the whole of that real estate fraction once any benefit has been granted, including the mere rent-free use of the property.

III. Can a tax treaty neutralise the French trust levy?

A. The method imposed on the courts: characterise first, compare second

The second 2026 ruling concerns a Canadian law trust created in 1986 by a French resident and composed of financial assets. Since those assets had not been reported for ISF purposes, the tax authorities assessed the trustee, a Canadian resident, to the trust levy for 2012 to 2015. The Paris Court of Appeal had discharged the trustee. In its view, the trust was a "person" within the meaning of the France-Canada tax treaty of 2 May 1975, its assets were taxable in Canada, and taxing them in France amounted to double taxation contrary to the treaty.

Quashed for lack of legal basis. The Supreme Court overturned that reasoning, not on the merits but on method. The treaty covers taxes on income and on capital, and its Article 2(5) extends it to identical or substantially similar taxes (identical or substantially similar taxes) introduced after its signature. Since the trust levy was introduced in 2011, the Court of Appeal should first have determined whether it qualified as such a tax before drawing any conclusion (Cass. com., 11 Feb. 2026, No. 23-14.305). The case was remitted to the Paris Court of Appeal sitting in a different composition. The ruling is unpublished, which limits its precedential weight, but it sets a method no practitioner can skip.

B. Is the Article 990 J levy a tax on capital? A comparative view

In our view, there is a strong case for characterising the levy as a tax similar to a wealth tax. Article 990 J itself states that the levy is "assis selon les règles applicables en matière d'impôt sur la fortune immobilière" [assessed under the rules applicable to the real estate wealth tax]; its rate is the top IFI rate; its base is the net market value of the assets on 1 January. It is not a penalty whose amount would be unrelated to the value of the assets, but an annual tax on the capital held in the trust, collected where that capital has not been taxed in the ordinary way. The fact that the trustee rather than the settlor pays it does not change its nature; it merely reflects a collection technique.

How other jurisdictions approach trusts. A comparison highlights the difficulty. In the Canadian case, the Court of Appeal's reasoning relied on treating the trust as a person for treaty purposes, taxable in Canada: an entity-based logic. The United States, which has no federal wealth tax, applies the grantor trust rules, under which the grantor or another person treated as owner reports the income, deductions and credits attributable to the portion of the trust they are deemed to own (26 U.S.C. § 671 et seq.): an attribution logic, close in spirit to the French deemed settlor fiction, but applied to income rather than capital. France combines both approaches, attaching trust capital to individuals while making the trustee liable for the penalty levy. This hybrid design makes treaty characterisation less predictable than elsewhere.

Limited protection in practice. Even where the treaty applies, its protective effect depends on its rule for allocating taxing rights over capital. Treaties following the OECD Model generally allow the State where immovable property is situated to tax it, with the State of residence relieving double taxation where necessary. For a trust holding a property in France, the treaty argument therefore has little chance of success. It regains its full relevance, however, for real estate located abroad and held through the trust of a settlor domiciled in France, which Article 990 J includes in its base: France, as State of residence, should then at least take into account the tax levied in the State of situation.

C. A checklist for a trustee facing a reassessment

For a foreign trustee or a settlor receiving a reassessment under Article 990 J, the analysis should follow a strict sequence. First, check whether the applicable treaty covers taxes on capital and not only taxes on income; if not, no treaty argument is available. Second, demonstrate that the levy is an identical or substantially similar tax under the treaty's extension clause, relying on its rules of assessment, rate and computation. Third, establish the treaty residence of the person invoking the treaty, which requires characterising the trust or foundation under the law of the other State, as a taxable entity or a transparent arrangement. Fourth, determine asset by asset which State the treaty entitles to tax the capital, distinguishing real estate according to where it is located.

This checklist shows that the treaty argument is neither universal nor automatic. It must be built case by case, treaty by treaty, and it runs into a line of French civil court decisions that tends to give precedence to French domestic characterisations where the treaty refers to them. The decision of the Paris Court of Appeal on remand in the Canadian trust case will be decisive in this respect: to our knowledge, it will be one of the first to rule on the merits of how the trust levy should be characterised for treaty purposes.

IV. Disclosing a trust in 2027: which strategy?

A. A disclosure filing is not a clearance

The Swiss foundation case arose from a voluntary disclosure filed in March 2015 under the programme then available to holders of undeclared foreign assets. The filing did not prevent the tax authorities from reassessing, more than three years later, the base adopted by the taxpayers. This sequence is a reminder of a point too often overlooked: a disclosure is not a negotiation over the tax base but a correct declaration. On the contrary, the filing gives the tax authorities full access to the structure's governing documents, statements of flows and correspondence with the trustee, from which they then draw the relevant legal conclusions.

The disclosure facility announced for 2027, whose stakes we set out in our analysis of France's 2027 voluntary disclosure facility, will inevitably attract trust and foundation files. For these structures, the 28 May 2026 ruling now frames the analysis: any filing based on a partial base, limited to the sums received or capitalised from them, will be exposed to reassessment, with the penalties and late interest that come with any under-declaration.

B. The method: start from the flows to characterise the structure

Preparing a disclosure involving a trust or foundation should begin with a full reconstruction of the flows over the entire period still open to assessment. Every distribution, loan, guarantee, payment of expenses or provision of assets to the settlor, the beneficiaries and their relatives must be listed. Each flow must then be measured against the purposes set out in the deed, the articles, the by-laws and the letters of wishes, as well as against the decisions of the foundation board or trustee. This comparison determines whether the structure confers contributive capacity and therefore whether all of its assets must be declared.

Defining the real estate base. Under the IFI, the second step is to identify precisely the real estate held by the structure, directly or through companies, and to value it on 1 January of each year. The rule that only the fraction of share value reflecting real estate is taxable requires obtaining from the trustee the accounts and inventories of the underlying entities. Finally, the trustee's own reporting must be checked: failure to report under Article 1649 AB triggers a EUR 20,000 penalty, and failure to include the assets in the IFI of the settlor or beneficiary triggers the Article 990 J levy, for which settlor and beneficiaries are jointly and severally liable.

C. The firm's position

Our recommendation is clear. As soon as a distribution, loan or benefit in kind has been granted whose link with the statutory purposes cannot be demonstrated, the disclosure must cover all the assets falling within the base, not the fraction considered economically available. Any other approach amounts to filing a case whose litigation outcome is now known. Challenges should be reserved for two situations: genuinely dormant structures, where the absence of any direct or indirect benefit can be documented, and files where the treaty argument is relevant, in particular for real estate located outside France and held through the trust of a settlor domiciled in France.

This position does not rule out planning. Identifying the right taxpayer (settlor or deemed settlor), valuing the real estate rigorously, applying the exclusions for property used in an operating business and restructuring the governance of the structure for the future are all legitimate levers. They operate, however, within a complete base, not by understating it.