Settlor or beneficiary of an Anglo-Saxon trust: why the French tax authorities treat your distributions as taxable income and place the burden of proof on you.
A taxpayer settled in France is the beneficiary of a trust set up long ago by a parent in a common-law jurisdiction, or has themselves placed financial assets in a trust before settling in France. In some years they receive payments from the trustee, and consider them the transmission of family capital, not taxable. The French tax authorities take the opposite view: payments received from a trust are treated as taxable income, and it is for the taxpayer to establish that they are not. This allocation of the burden of proof, confirmed by the Conseil d'État on 13 March 2026, illustrates the structural distrust of French tax law towards an instrument it long ignored.
The trust, a central figure of Anglo-Saxon wealth law, has no equivalent in French civil law. The legislature has nonetheless framed it fiscally through a comprehensive regime, based on strict filing obligations and on three registers of taxation: income tax on distributions, the real estate wealth tax, and a specific sui generis levy. Recent case law clarifies both the burden of proof on the beneficiary and the interaction of this levy with international tax treaties.
We first present the tax definition of the trust and the filing obligations on its actors (I), then the taxation of distributions and the evidentiary challenge that follows (II), before examining the real estate wealth tax, the sui generis levy and the interaction with treaties, together with our recommendations (III).
I. The trust before French tax law: definition and filings
A. A common-law instrument captured by tax law
French tax law has given an autonomous definition of the trust in article 792-0 bis of the French General Tax Code (CGI). The trust is understood as the set of legal relationships created, in the law of a State other than France, by a person having the status of settlor, by act inter vivos or upon death, with a view to placing assets or rights there, under the control of an administrator, in the interest of one or more beneficiaries or for the realisation of a determined objective. Three actors structure the trust: the settlor (constituant), who places the assets, the administrator (trustee), who manages them, and the beneficiary or beneficiaries (bénéficiaires), who collect the fruits or the capital.
The logic of the settlor deemed owner. Unable to grasp the dissociation of ownership specific to the trust, French tax law reasons, in essence, as if the assets placed in the trust remained in the settlor's estate, or in that of the person deemed to be the settlor. This fiction governs the application of the real estate wealth tax and of gratuitous transfer duties. Where the initial settlor has died, the beneficiary may in turn be deemed settlor, so that the chain of taxation is not broken. This approach, which overlays a civil-law grid on an instrument foreign to it, is the source of many practical and litigious difficulties.
B. Strict, heavily sanctioned filing obligations
The pivot of the regime lies in the filing obligations placed on the trust's administrator by article 1649 AB of the CGI. As soon as the settlor or at least one of the beneficiaries has their tax residence in France, or the trust comprises an asset or right located there, the administrator must file two returns. The first, the event-based return, covers the constitution, modification, extinction and content of the terms of the trust, and must be filed within the month following the event. The second, the annual return, covers the market value, as of 1 January, of the assets and rights placed in the trust together with their capitalised income, and must be filed by 15 June at the latest with the tax office for foreign businesses (CGI, ann. II, art. 369 A). These returns feed a register of trusts kept by the authorities.
A dissuasive sanction. Breach of these obligations is heavily sanctioned, article 1736, IV bis, of the CGI providing for a flat-rate fine of 20,000 euros per missing or incomplete return. Beyond this fine, the failure to file exposes the trust to the specific levy discussed below. The rigour of this filing regime, which formally falls on the administrator established abroad but whose consequences reach the resident settlor and beneficiaries, requires the latter to ensure that the trustee actually complies with its French obligations, which presupposes a coordination that practice too often neglects.
II. Taxation of distributions and the burden of proof
A. The burden of proof falls on the beneficiary
The income distributed by a trust to a beneficiary resident in France is taxable to income tax in the category of investment income, on the basis of article 120, 9°, of the CGI, whatever the composition of the assets or rights placed in the trust. The Conseil d'État clarified the reach of that provision in a decision of 13 March 2026 (CE, 9th and 10th chambers combined, no. 500318): the income of a trust may be taxed to income tax, in the category of investment income, only if the taxpayer has the effective disposal of it, article 120 being read together with article 12 of the same code. But, when it comes to characterising the payments received, it falls on the taxpayer alone to produce the evidence establishing that they do not correspond to distributions of income. The Conseil d'État therefore does not reason in terms of a presumption, it allocates the burden of proof, and the practical outcome is comparable: a beneficiary seeking to escape taxation must establish that the sums received are not income, but for instance a repayment of capital, an advance on the corpus of the trust, or a loan. The effective-disposal condition nevertheless remains a self-standing line of defence, distinct from the evidential debate on the nature of the payment.
This allocation of the burden of proof reflects a clear will of the legislature and the courts not to let trust distributions escape tax under cover of their allegedly patrimonial nature. In practice, the beneficiary who receives funds from a trust cannot merely assert that it is family capital; they must provide documented proof of it, failing which the entire payment will be taxed as income. Hence the importance of the trust's accounting and legal documentation, the only means of characterising the real nature of the sums paid.
B. A deficit trust offers no protection: the evidentiary challenge
An argument frequently advanced by beneficiaries is that the trust, being globally in deficit, cannot distribute income, so that the payments received can only be drawings on capital. The Conseil d'État rejected this reasoning in its decision of 13 March 2026 (no. 500318), holding that the administrative court of appeal had committed no error of law in finding that the trust's deficit position did not prevent the payments received from being regarded as distributions of income. The overall accounting situation of the trust, in deficit or not, does not automatically determine the nature of the payments. A trust can distribute income while remaining globally in deficit, and the characterisation as income within the meaning of article 120 is assessed payment by payment, independently of the overall situation of the structure.
A heightened burden of proof. It follows that merely demonstrating a negative overall net result of the trust does not suffice to escape taxation. The taxpayer must produce precise elements, in particular the trust's accounting documents, establishing that each disputed payment does not correspond to a distribution of income. This evidentiary requirement is all the more delicate as the beneficiary does not always control the trust's accounts, kept by a foreign administrator under its own standards. The trustee's cooperation and the traceability of flows thus become decisive, and their absence mechanically turns against the resident beneficiary.
III. Wealth tax, sui generis levy and tax treaties
A. The real estate wealth tax and the sui generis levy
Beyond income tax, the trust is captured by the real estate wealth tax. The real estate assets and rights placed in a trust are, under article 970 of the CGI, included in the estate of the settlor, or of the beneficiary deemed settlor, for the determination of the basis liable to the real estate wealth tax. The fiction of the settlor deemed owner applies fully here, so that real estate lodged in a trust does not escape this tax where the settlor is resident in France or the assets are located in France. The settlor or the beneficiary deemed settlor may nevertheless escape this taxation by demonstrating that the assets placed in the trust confer on them no taxable capacity, assessed by reference to the direct or indirect advantages, including non-pecuniary ones, that they are liable to derive from them; that proof cannot result solely from the irrevocable character of the trust or from the discretionary management power of its administrator (Conseil constitutionnel, 15 December 2017, no. 2017-679 QPC, whose solution the official guidance transposes to the real estate wealth tax).
The specific levy of article 990 J. As a guarantee and a sanction, article 990 J of the CGI establishes a specific levy, known as sui generis, whose base has, since 1 January 2018, been confined to the assets referred to in article 965 of the CGI, that is, real estate assets and rights and the real-estate fraction of shares or interests, taken at their net market value as of 1 January. Its rate is that of the highest bracket of the real estate wealth tax, namely 1.5% (CGI, art. 977, 1). The levy is not due where those assets have been duly reported for real estate wealth tax purposes by the settlor or the beneficiary deemed settlor, nor where they have been reported under article 1649 AB while the taxpayer's estate falls below the taxable threshold: the levy and the real estate wealth tax are therefore never cumulated on the same assets. A trust composed exclusively of financial assets thus falls outside the levy, which was not the case under the wording in force before the 2018 reform. The levy is assessed and paid by the administrator by 15 June at the latest, the settlor and the beneficiaries being jointly liable in default (CGI, art. 1754).
B. The interaction with tax treaties
The question whether a tax treaty can stand in the way of the sui generis levy was addressed by the Cour de cassation in a judgment of 11 February 2026 (Com., no. 23-14.305, unpublished), which quashed for lack of legal basis a decision granting discharge of the levy on the basis of the France-Canada treaty. A lower court cannot set aside the application of this levy on the ground that it would create double taxation prohibited by a treaty, without first examining whether this levy, established after the signing of the treaty, constitutes a tax of an identical or analogous nature to those the treaty covers, and thus falls within its material scope. In other words, invoking a treaty presupposes establishing that the disputed levy indeed falls within the taxes covered by that treaty, which is far from obvious for a levy of hybrid nature. It should be added that the official guidance asserts, for its part, that the levy is not covered by the treaties for the elimination of double taxation on income and on capital concluded by France (BOI-PAT-IFI-20-20-30-20, § 130). It is precisely that position which the Cour de cassation declined to endorse: it requires the court to examine the question, which leaves the debate open.
A nature to be determined. The reach of this requirement will depend on the characterisation retained for the article 990 J levy and on the wording of the treaty at issue, in particular where it mentions a wealth tax. Where the treaty covers such a tax and the levy can be regarded as analogous, the treaty argument regains its force; failing that, the levy applies without the treaty being able to defeat it. This analysis, eminently technical, must be conducted case by case, for it can make the difference between a confirmed tax and a discharge.
C. Practical recommendations: declare, document, characterise
Ensure compliance with filing obligations. The first precaution, for any French resident connected to a trust, is to verify that the administrator actually files the required event-based and annual returns. Because the fine and the levy sanction the failure to file, and because the resident beneficiary or settlor bears the consequences of the trustee's breach, active coordination with the foreign administrator is indispensable, ideally formalised to guarantee the transmission of the necessary information.
Document the nature of payments upstream. Since the proof of the nature of each payment falls on the beneficiary and the trust's deficit situation offers no protection, one must organise, from the outset and on a continuous basis, the accounting and legal documentation enabling each distribution to be characterised. Clearly distinguishing, in the trust's accounts, income from capital, keeping the constitutive deeds and the administrator's decisions, and obtaining usable accounts from the trustee are conditions of the beneficiary's defence in the event of an audit.
Analyse the treaty interaction before relying on it. Before invoking a tax treaty to set aside the sui generis levy or another tax, one should precisely analyse whether the levy at issue falls within the material scope of the treaty. We assist settlors and beneficiaries in this analysis, in securing their filing obligations and in the documentary structuring of their trusts, so as to turn a diffuse exposure into a mastered situation.
Conclusion
The trust, a familiar instrument of Anglo-Saxon law, is apprehended by French tax law with a distrust that translates into strict filing obligations, a burden of proof that falls on the beneficiary of distributions and a specific guarantee levy. Recent case law confirms that the burden of proof weighs heavily on the beneficiary, that the trust's deficit situation offers no protection, and that invoking a treaty presupposes establishing that the disputed levy falls within its material scope.
Our conviction is that the tax security of a trust with a settlor or beneficiary resident in France rests less on the nature of the instrument than on the rigour of its documentation and filings. A properly declared trust, whose accounts clearly distinguish income from capital, places its beneficiary in a position to establish the real nature of the payments; an opaque trust exposes them to full taxation of their distributions.
Our recommendation is clear: if you are a settlor or beneficiary of a trust and resident in France, have compliance with the filing obligations audited, organise the accounting documentation enabling payments to be characterised, and analyse the treaty interaction before any litigation. Mastery of proof is, in trust matters, the only real protection.
Frequently asked questions
How are payments received from a trust taxed in France?
The income distributed by a trust to a beneficiary resident in France is taxable to income tax in the category of investment income (CGI, art. 120, 9°), whatever the composition of the assets or rights placed in the trust. The Conseil d'État held on 13 March 2026 (no. 500318) that such income is taxable only if the taxpayer has the effective disposal of it, but that it falls on the taxpayer alone to establish that the payments received do not correspond to distributions of income. The beneficiary must therefore show, with accounting records in support, that the sums received are a repayment of capital, an advance on the corpus or a loan.
Does a deficit trust escape taxation of its distributions?
No. The overall accounting situation of the trust, in deficit or not, does not automatically determine the nature of the payments. A trust can distribute taxable income while being globally in deficit, the characterisation being assessed payment by payment. Merely demonstrating a negative net result therefore does not suffice to escape tax. The taxpayer must produce precise elements, in particular the trust's accounting documents, establishing that each payment does not correspond to a distribution of income.
What filing obligations apply to a trust connected to France?
Where the settlor or a beneficiary is resident in France, or the trust comprises an asset located in France, the administrator must file an event-based return (constitution, modification, extinction, within the month) and an annual return, by 15 June at the latest, of the market value of the assets as of 1 January together with their capitalised income (CGI, art. 1649 AB). Breach is sanctioned by a fine of 20,000 euros per missing return (CGI, art. 1736, IV bis), in addition to the possible application of the specific levy of article 990 J.
Can a tax treaty set aside the levy on trusts (article 990 J)?
Not automatically. A court cannot set aside the article 990 J levy on the ground of treaty double taxation without first examining whether this levy constitutes a tax of an identical or analogous nature to those the treaty covers, and falls within its material scope. The treaty argument therefore applies only if the levy indeed falls within the taxes covered by the treaty, for instance where it mentions a wealth tax. This analysis is technical and must be conducted case by case.