Three landmark Q1 2026 decisions reshape the tax risks facing trust beneficiaries in France
Within six weeks in early 2026, three decisions handed down by the Conseil d'État (France's highest administrative court), the Cour de cassation (its highest civil court) and the Versailles Administrative Court of Appeal fundamentally altered the tax position of French-resident beneficiaries of foreign trusts. A heavier burden of proof, the Article 990 J levy remanded for further examination, and the non-deductibility of inheritance duties from the liquidation surplus: taken individually, each decision represents a significant development. Together, they paint a markedly more hostile fiscal landscape for affected taxpayers.
These three rulings build upon the legislative framework established since 2011 to bring foreign trusts and foundations within the reach of French tax law, a framework we analysed in detail in our comprehensive guide to the taxation of foreign trusts and foundations. This article focuses on the contribution of each decision and its immediate practical consequences for trust beneficiaries and their advisors.
We examine in turn the Conseil d'État's endorsement of the presumption that trust distributions constitute taxable income (I), the open question of the Article 990 J levy vis-à-vis bilateral tax treaties (II), and the confirmation that inheritance duties are not deductible from the taxable liquidation surplus (III).
I. Trust distributions: the Conseil d'État endorses the presumption of taxable income (CE, 13 March 2026, No. 500318)
A. Background: jurisprudential instability on the burden of proof
The statutory framework and its original ambiguity. Article 120-9° of the French General Tax Code (CGI) provides that "income distributed by a trust" (produits distribués par un trust) is taxable as investment income (revenus de capitaux mobiliers). The provision is silent on a fundamental question: when a trust pays a sum to its beneficiary, who bears the burden of proving the nature of that payment, taxable income or capital repayment falling outside the scope of income tax? The 2011 legislature, by targeting only "income" (produits), implicitly accepted that capital repayments are not taxable on this basis. But it established no evidential mechanism, leaving the courts to resolve this decisive issue.
The CAA Paris reversal of October 2024. The Paris Administrative Court of Appeal had initially held, in a judgment of its 5th Chamber dated 21 April 2023 (No. 20PA02868), that the burden of proof lay with the tax authorities: it was for the administration to establish that distributions constituted taxable income. Yet eighteen months later, the 9th Chamber of the same Court executed a dramatic reversal in its judgment of 11 October 2024 (No. 22PA03139): it was now for the taxpayer to demonstrate, from the trust's accounts, that the sums received corresponded to capital. The case concerned the sole beneficiary, in income and capital, of an irrevocable Canadian trust, who had received funds from the trustee without being able to produce the accounting records needed to trace the origin of the distributed sums.
B. The Conseil d'État's contribution: an implicit but necessary presumption
Validation of the presumption of taxable income. In its decision of 13 March 2026 (No. 500318), the Conseil d'État dismissed the taxpayer's appeal and fully endorsed the analysis of the Paris Administrative Court of Appeal. France's highest administrative court confirms that Article 120-9° CGI establishes, implicitly but necessarily, a presumption that sums distributed by a trust to its beneficiaries constitute taxable income. In other words, any sum paid by a trust to a French tax-resident beneficiary is presumed to be taxable income unless the taxpayer proves otherwise. This presumption is not irrebuttable (it can be overturned) but the burden of doing so rests exclusively on the beneficiary. The Conseil d'État thus anchors in the case law of the supreme administrative jurisdiction a rule that the CAA Paris had developed at appellate level, conferring upon it definitive normative force.
Evidential requirements: the trust's accounts as the sole path to safety. The Conseil d'État specifies the contours of the evidence expected from the taxpayer. The beneficiary must "establish, in particular from the trust's accounts, the existence of one or more transactions affecting the trust's capital, falling outside the scope of income tax, giving rise to the distribution in question." This formulation is demanding on two counts. First, it requires detailed accounting documentation from the trust (financial statements, bank records, tracking of flows between capital and income) which is not always available, particularly for trusts established decades ago in jurisdictions with limited accounting obligations. Second, the causal link between the capital-affecting transaction and the distribution in question must be demonstrated: it is not enough to prove that the trust holds capital; one must establish that it was precisely that capital which was distributed.
The spectre of double taxation: the Quéméner question. The Conseil d'État's decision brings to the fore a double taxation problem that practitioners are identifying with growing concern. An heir who has paid inheritance duties on the value of trust-held assets (under Article 792-0 bis CGI) and who subsequently receives a distribution of those same assets potentially faces a second layer of taxation (this time to income tax) if they cannot demonstrate the capital character of the distribution. The question then arises whether the principle established by the Conseil d'État in its landmark Quéméner decision of 16 February 2000 (No. 133296) —(which neutralises economic double taxation upon the sale of partnership interests by reinstating previously-taxed profits in the cost basis) could be transposed to trusts. Such a transposition would allow the beneficiary to deduct from the taxable amount of distributions the fraction corresponding to assets on which they have already borne inheritance duties. This avenue, attractive in principle, has not yet been endorsed by the courts in the trust context and would merit being raised in appropriate future litigation.
II. The Article 990 J levy and tax treaties: the Cour de cassation reopens the debate (Cass. com., 11 February 2026, No. 23-14.305)
A. The sui generis levy under Article 990 J CGI: overview of the mechanism
A specific charge in lieu of undeclared wealth tax. Article 990 J CGI institutes an autonomous levy applicable to individuals who are settlors or beneficiaries of a trust within the meaning of Article 792-0 bis when the trust-held assets have not been duly declared for wealth tax purposes (formerly ISF, now IFI for real estate assets). This levy, calculated at the highest rate of the former solidarity tax on wealth (the marginal rate under Article 885 U, 1 CGI as applicable to the years in dispute), is assessed against the trust administrator (trustee), with the beneficiary being jointly and severally liable for payment in the event of the administrator's default. The mechanism serves a deterrent purpose: it penalises the failure to declare by taxing the trust's patrimony at the maximum rate, without the progressive scale or exemptions. Its sui generis character (neither strictly a wealth tax nor a penalty in the classical sense) raises the question of its precise legal nature and, consequently, its interaction with international tax treaties.
B. The treaty-based argument: the trust as a "person" entitled to treaty benefits
The facts of the case. The dispute involved a French resident who, during an audit of their ISF declarations for the years 2012 to 2015, acknowledged having established in 1986 a Canadian-law trust composed of financial assets. The tax authorities, finding that these assets had not been declared, notified the Canadian trustee on 31 July 2017 of the levies deemed payable for the relevant years. The trustee contested the levy's enforceability by invoking the Franco-Canadian tax treaty of 2 May 1975. The argument rested on two grounds: Article 3 § 1(b) of the treaty expressly names trusts in the list of "persons" entitled to treaty benefits; and Article 22 § 6, concerning the taxation of capital (fortune), provides that a resident's assets are taxable only in the State of which the person is a resident. The Paris Court of Appeal, in a judgment of 16 February 2023, accepted this reasoning and discharged the levy.
Cassation: the question of the levy's nature remains open. The Cour de cassation, in its judgment of 11 February 2026 (No. 23-14.305), quashed the appellate decision for insufficient reasoning. The reproach directed at the lower court is precise: the Court of Appeal discharged the levy by application of the Franco-Canadian treaty without first verifying whether the levy under Article 990 J CGI fell within the scope of the taxes covered by the treaty alongside ISF. Article 2 of the Franco-Canadian treaty defines the taxes to which it applies: for France, "income tax" and "wealth tax." The question is therefore whether the Article 990 J levy (which did not exist when the treaty was signed) falls within the category of "analogous or substantially similar" taxes covered by the treaty's evolutive clause in Article 2. The Cour de cassation does not answer this question: it remands the case for the appellate court to do so.
Outlook: assimilation probable but not certain. We consider that strong arguments support the assimilation of the Article 990 J levy to the wealth taxes covered by bilateral treaties. The levy's base is the fair market value of trust assets, a patrimonial base identical to that of ISF/IFI. It taxes wealth held, not income received. And, crucially, the trust beneficiary is jointly and severally liable for payment in the event of the administrator's default, confirming the patrimonial nature of the charge from the French taxpayer's perspective. However, the levy's punitive character (marginal rate without progressive scaling, no allowances) could lead the court on remand to characterise it as a sui generis measure falling outside the treaty's scope. The outcome of this case is essential for all beneficiaries of trusts established in States whose treaty with France provides for exclusive taxation of wealth by the State of the trust's residence.
III. Trust liquidation: inheritance duties are not deductible from the taxable surplus (CAA Versailles, 26 March 2026, No. 24VE00035)
A. The trust liquidation surplus: taxable income measured from the date of succession
The legal framework for liquidation. When a French-resident beneficiary dissolves a trust inherited upon a settlor's death, the sums received upon liquidation are potentially subject to income tax under Article 120-9° CGI, to the extent they constitute "income distributed by a trust." The question of the taxable base arises acutely: must the entire liquidation value be taxed, or only the increase in value since a reference event? The Cergy-Pontoise Administrative Tribunal, in a judgment of 7 November 2023 (No. 1914703), set an initial marker by holding that the taxable liquidation surplus was limited to the increase in value of the trust-held assets since the opening of the succession. In other words, the taxable base consists of the unrealised gain accrued between the date of death (at which the assets were subject to inheritance duties on their fair market value) and the date of the trust's liquidation. This solution, favourable to the taxpayer, recognises that the value of the assets at the date of death has already borne transfer duties and should not be taxed again under income tax.
B. Non-deductibility of inheritance duties: double charge confirmed
The taxpayer's claim: deducting inheritance duties from the surplus. The taxpayer in the Cergy-Pontoise proceedings had made a subsidiary claim: assuming the liquidation surplus is taxable on the post-death increase in value, could the inheritance duties paid on the asset value at the date of death be deducted from the taxable amount? The underlying economic logic is intuitive: inheritance duties constitute a cost of acquisition of the trust assets for the heir-beneficiary, just as the purchase price of a security constitutes its cost basis for calculating a disposal gain. Deducting these duties from the taxable surplus would prevent the taxpayer from bearing, on the same assets, both transfer duties (up to 45% in the direct line) and income tax (30% at the flat tax rate), resulting in a combined fiscal charge potentially exceeding two-thirds of the asset value.
The categorical refusal by the CAA Versailles. The Versailles Administrative Court of Appeal, in its judgment of 26 March 2026 (No. 24VE00035), unambiguously rejects this claim. It holds that sums paid as inheritance duties do not constitute, within the meaning of Article 13 CGI, "expenses incurred for the acquisition and preservation of income." Inheritance duties are the corollary of acquiring an estate (patrimoine), not income. Nor are they among the charges whose deduction from aggregate income is expressly provided for by Article 156(II) CGI. Consequently, the administration was correct to refuse their deduction from the net value of the trust's liquidation surplus and to disallow them as a deduction from the applicants' taxable income. This solution, legally rigorous as regards the letter of the statute, nonetheless produces an economically questionable result: the taxpayer bears a double fiscal charge (inheritance duties followed by income tax) on the same pool of assets, without any corrective mechanism.
Critical analysis and litigation prospects. We consider that this decision, while well-founded in positive law, illustrates a structural gap in the trust tax regime. The 2011 legislature designed a system of trust taxation by superimposing mechanisms (transfer duties upon the settlor's death, income tax on distributions, the patrimonial levy) without organising coordination between them to prevent economic double charges. The Conseil d'État's Quéméner case law, which neutralises economic double taxation in the partnership context, rests on reasoning transposable to trusts: where a taxpayer has already borne tax on the value of an asset, that value should be "purged" upon the subsequent taxation of an event affecting the same asset. Such a transposition would, however, require bold judicial intervention, or, preferably, legislative clarification that we urge. In the meantime, trust beneficiaries contemplating liquidation must factor this double charge into their analysis and, where appropriate, explore alternatives to outright dissolution (staggered distributions, prior restructuring of the trust, transfer to a French vehicle).
Conclusion
The three decisions of Q1 2026 converge in a single direction: the progressive tightening of the tax treatment of French-resident beneficiaries of foreign trusts. The Conseil d'État endorses a presumption of taxable income that places the entire evidential risk on the taxpayer. The Cour de cassation maintains pressure on the wealth tax front by declining to validate treaty protection prematurely. The CAA Versailles closes the path of deducting inheritance duties, consolidating the risk of double charge. Taken together, these decisions reveal a fiscal environment in which trust beneficiaries can no longer afford documentary approximation or strategic passivity.
We observe, however, that these decisions simultaneously open novel litigation avenues. The transposition of the Quéméner principle to trust taxation, the treaty characterisation of the Article 990 J levy, and the question of coordinating inheritance duties with income tax upon liquidation all constitute grounds on which well-constructed litigation could shift positive law in the taxpayer's favour. The essential point, for beneficiaries and their advisors, is to anticipate these issues from the opening of the estate and to compile, without delay, the evidential documentation that the case law now demands.
Our recommendation is clear: every beneficiary of a foreign trust must, as of today, ensure that the trust's accounting records can irrefutably trace the origin (capital or income) of every distribution. This is the sine qua non condition for avoiding blanket taxation of all flows received, regardless of inheritance duties already paid. The absence of such documentation is no longer a merely theoretical risk: it is a certainty of reassessment.
Frequently asked questions
What does the Conseil d'État's decision of 13 March 2026 concretely change for trust beneficiaries?
Before this decision, uncertainty persisted as to whether the taxpayer or the tax authorities bore the burden of proving the nature of trust distributions. The Conseil d'État definitively resolves the issue: it is for the beneficiary to demonstrate, with supporting trust accounting documents, that the sums received correspond to capital (non-taxable) rather than income. In the absence of such proof, any distribution is taxed as investment income at the 30% flat tax rate. Beneficiaries must therefore urgently obtain from their trustee detailed financial statements tracing the origin of every distributed flow.
Does the tax treaty between France and the country of the trust protect me from the Article 990 J levy?
The answer remains uncertain following the Cour de cassation's judgment of 11 February 2026. The Court quashed the appellate decision that had granted discharge under the Franco-Canadian treaty, on the grounds that the judges had not verified whether the Article 990 J levy fell within the scope of taxes covered by the treaty. The case has been remanded for re-examination. Pending the remand decision, treaty protection cannot be considered settled, and trust beneficiaries must continue to comply scrupulously with reporting obligations to avoid triggering the levy.
If I dissolve an inherited trust, can I deduct the inheritance duties I paid from the taxable liquidation surplus?
No. The CAA Versailles expressly held on 26 March 2026 that inheritance duties do not constitute deductible expenses within the meaning of Article 13 CGI, since they relate to the acquisition of an estate rather than to the acquisition or preservation of income. The taxable surplus is therefore calculated without deducting inheritance duties, creating a double fiscal charge on the same assets. Pending any legislative or judicial evolution (transposition of the Quéméner principle), beneficiaries must factor this additional cost into their decision whether or not to liquidate the trust.
How might the Quéméner principle apply to trusts to prevent double taxation?
The Quéméner principle, derived from a Conseil d'État decision of 16 February 2000, aims to neutralise economic double taxation by allowing the taxpayer to reinstate previously-taxed profits in their cost basis. Transposed to trusts, it would allow a beneficiary who has paid inheritance duties on trust asset values to increase correspondingly the non-taxable capital base when calculating subsequent distributions. This transposition has not yet been endorsed by the courts in the trust context and constitutes, at this stage, a promising litigation avenue that deserves to be raised before the administrative courts in an appropriate case.