The Law on Fiduciary of February 19, 2007 introduced section XIV "Fiduciary" into the French Civil Code.
The institute of "trust" was introduced in France in 2007. Taking into account its peculiarities, in comparison, for example,with the Anglo-Saxon trust (trust) and the Russian trust management (DU), in this note we will refer to it under its French name fiducie [fiducie].
According to Article 2011 of the French Civil Code (GCF), fiducie is a transaction through which one or more founders transfer assets (existing or to be acquired in the future), or part of it, to a trustee (fiduciary), who separates it from his own property in order to carry out actions for the benefit of one or more beneficiaries with a predetermined purpose.
At the same time, there is a so-called separate ownership in the balance sheet of the fiduciary. In this, fiducie is similar to trust, but differs from DU, in which there is no transfer of ownership. However, fiducie is not about an absolute transfer of ownership, but about a conditional and targeted one. The entire fiducie legal regime, carefully developed by the French legislator, is aimed at effectively protecting the rights of the founder and beneficiary.
Before outlining the legal regime of fiducie, one should familiarize oneself with the practical application of fiducie (The Fiduciary Act of February 19, 2007, which introduced section XIV "Fiduciary" into the French Civil Code.).
Practical applications of fiducie
Fiducie is as rich in its practical applications as trust. Just like the latter, it can be used as a means of management (A), guarantee or enforcement of obligations (B) or alienation of property (C).
a) Fiducie-management
In this type of fiducie, property can be transferred to a fiduciary for a variety of purposes, the main of which are set out below. In all these operations, fiducie often acts as a means of efficient, economical and anonymous asset management.
Management in order to increase the asset. This is a classic application of fiduciary management. Here we can talk about both the management of simple real estate for the purpose, for example, of renting it out, and the management of more complex assets (securities packages, industrial assets...). In the fiducie agreement, the fiduciary can have a variety of goals. And the fiduciary himself may be endowed with more or less extensive powers to achieve these goals.
Financial management. They are mainly engaged in financial institutions, in the field of syndicated lending, clearing the financial balance, and managing the savings fund.
Managing relationships between co-founders of companies and foundations. Fiducie is an extremely convenient means of cooperation between co-founders of enterprises who are unwilling or unable to participate directly in decision-making, and in this regard act as a more flexible and convenient alternative to holding companies and shareholder agreements.
Cooperation between enterprises. For businesses and individuals wishing to invest in a joint project (for example, in the field of scientific or marketing research), fiducie is an excellent alternative to creating joint legal entities both from a practical and tax point of view.
b) Fiducie-warranty
The mechanism of fiducie as a guarantee of fulfillment of obligations is quite simple. Here, the fiduciary acts as a kind of depository of the guarantee (pledge). In the simplest scheme, by virtue of the fiducie agreement, if the fiducie founder properly fulfills his obligations, the fiduciary returns the property to him, and in case of non–fulfillment, the property is transferred to the beneficiary of the guarantee. There are also more complex schemes.
c) Fiducie-transfer
Fiducie is also a convenient mechanism for the return transfer of property. However, unlike trust, the transfer can only be for a payment. This is due in particular to tax considerations, which are set out below.
Fiducie's legal regime
a) Regarding the parties
The founder. Any person (or group of persons) who is a resident of France, the EU or another country that has concluded a tax convention with France with a provision on mutual administrative assistance (Russia among them) can act as a founder of fiducie.
The fiduciary. Only regulated financial institutions and lawyers can act as a fiduciary. The purpose of this restriction is the need to protect the interests of the founders and their beneficiaries, as these categories of professionals are subject to strict regulations and professional secrecy.
In addition to the strict regulation of fiducie itself, lawyers act within the norms of their profession, which provide additional guarantees to founders and beneficiaries.
In relations with third parties, the fiduciary is considered to have the broadest powers to dispose of the entrusted property, except in cases where third parties were aware of the limitation of his powers.
The beneficiary. They can be any person, i.e. individuals and legal entities, residents of France or any other country. The founders themselves can act as a beneficiary.
Auditor (optional participant). The founder may also appoint an independent auditor who will monitor the fiduciary's compliance with its obligations and periodically inform the founder and/or beneficiary.
Usually, a fiduciary contract is a simple contract that requires registration with the tax administration.
However, in case of transfer of joint property and/or real estate, the contract must be concluded in a notarized form.
b) Regarding the property
Any type of property (property rights) in full or dismembered form may become the subject of fiducie. At the same time, it is not necessary that the property be located on the territory of France.
In this sense, the French fiducie acts as a universal asset management mechanism. And fiducie's principle of tax neutrality, discussed below, makes it an excellent alternative to similar mechanisms existing in other countries.
Just like in a trust, the transferred property becomes the temporary property of a fiduciary who acts on his own behalf. This is necessary to ensure the anonymity of the founder. However, fiduciary property is not included in the personal property of the fiduciary, but becomes a separate property in its balance sheet. And the fiduciary manages it solely to achieve the goals and within the framework of the powers that must be clearly spelled out in the fiducie agreement.
In case of insolvency of the fiduciary, the property that is the object of fiducie is not foreclosed. And the obligations related to fiducie are satisfied at the expense of the entrusted property.
c) Regarding taxation
The fiducie agreement, under threat of invalidity, is subject to registration with the tax authority at the location of the fiduciary, or with the tax authority of non-residents, if the fiduciary is not a resident of France. If real estate is transferred during fiducie, an appropriate mark is made in the register of real estate.
Thus, the fiduciary agreement transferring the rights to real estate is subject to double registration:
- registration of the contract itself worth 125 euros
- registration of transfer of ownership: 1% of the value of the property
However, fiducie is subject to full tax neutrality, as the transfer of property is not subject to taxes related to the alienation of property. At the same time, fiducie is not a tax avoidance tool, since if the founder pays property tax (wealth tax) on the transferred property, he continues to pay it.
It should also be clarified that the fact of transfer of foreign property under fiducie in France does not entail taxation of this property in France.
The consequence of fiducie's principle of tax neutrality is that the latter is not a tool for tax optimization, but a mechanism for effective management and transfer of assets. However, fiducie can be used in conjunction with numerous tax optimization mechanisms.