ARTICLES and NOTES - Notarius International

260 R. Frimston/R. A. D. Urquhart, La Vie en France Notarius International 3-4/2002
It has been argued by Henry Dyson and Keith Croft in
Solicitors Journal of 15th February 2002 that in relation
to an SCI, if its constitution specifically provides that no
member may be a gérant and that his powers are spelt out
and that in practice such a gérant is appointed and operates
independently as such, that this may be sufficient to
ensure that there is no member who is a director or shadow
director, so that no benefit in kind problem ensues.
We do have some difficulties with this view. In practise
we doubt that many clients will be prepared to follow this
course and in addition it is clear that the intuitus personae
nature of the members of an SCI make this very difficult
to argue, even if the tests in Deverell were overcome.
It may be preferable to avoid the use of a société civile
immobilière, if possible. However, in circumstances
where the benefits of its use, by allowing owners of properties
in France to organise their property holdings effectively
and carry out some estate planning, by turning
French immovable property subject to French succession
law into movable property subject to the law of the individual’s
domicile, outweigh the disadvantages, then the
problem of the potential benefit in kind must be faced.
3.2. Tax Bulletin issues 39 and 50
The Tax Bulletins specifically refer to foreign business
entities and the distribution of profits.
In the circumstances of a société civile immobilière
holding French immovable property for the benefit of
United Kingdom taxpayers and which property is not let,
if the société civile immobilière is not carrying on any
business activity and not creating profits, then one may
argue that as stated in Tax Bulletin issue 39 whether a
société civile immobilière is transparent or opaque will
not necessarily be the same in all cases and that, in these
circumstances, the classification in Tax Bulletin issue 50
can be distinguished, that the Revenue’s traditional view
is still correct and that, in these circumstances, the société
civile immobilière should be classified as transparent
rather than opaque.
In addition, if the statuts of the société civile immobilière
are varied to ensure that the members’ liability is both
joint and several, this may give an added argument that
the société civile immobilière should be regarded as
transparent in the United Kingdom in addition to France,
being more similar to that of a partnership than a body
corporate.
3.3. Who is the Beneficial Owner
Historically, it had been assumed that an English trust
would not be relevant to French immovable property and
that therefore the beneficial owner for United Kingdom
tax and other purposes must be the French titleholder, being
the société civile immobilière. Clearly for United
Kingdom tax purposes the question is a matter within the
jurisdiction of the United Kingdom rather than the
French Court.
The Hague Convention on the Law Applicable to
Trusts and their Recognition (ratified in England by the
Recognition of Trusts Act 1987), makes it clear that,
since the United Kingdom has specifically not ratified
Article 13, the English Court must recognise a trust of
property in a territory without a law of trusts (e.g.
France), established by a settlor from such a territory, if
the law of a territory which has a law of trusts has been
chosen by the settlor (e.g. England).
Whether or not, however, the Hague Convention applies
to a Declaration of Trust as opposed to a Settlement
is a nice point. Questions of “rockets” and “rocket
launchers” are beyond the scope of this article, but broadly,
the authors of Lewin on Trusts (17th Edition) believe
that the Convention does apply to a Declaration of Trust,
whilst other authorities such as the von Overbeck Report
and Underhill & Hayton’s Law of Trusts (15th Edition)
express some doubts.
If the Convention might not apply to Declarations of
Trust, then in any event the cases of Webb v Webb [1994]
QB 696 and Ashurst v Pollard [2001] Ch 595 have shown
that the English Court will under the Common Law enforce
an English Trust in relation to beneficial interests in
foreign immovables even in circumstances without a specific
Settlement.
It seems perfectly feasible, therefore, to argue that in
circumstances in which United Kingdom taxpayers have
purchased French immovable property through the vehicle
of a société civile immobilière, that the société civile
immobilière may hold the property as nominee for the
United Kingdom taxpayers as absolute beneficial owners.
Each individual case needs to be examined on its own
facts.
In addition, if the English Court did find that the société
civile immobilière holds the French property as bare
trustee for the individual United Kingdom taxpayers who
hold the beneficial interest in French immovable property
in their own right, then the Court might also find that
French succession law should also properly apply to such
property interests, thus perhaps overriding one of the purposes
in using a société civile immobilière in the first
place. It would be important therefore that the terms of
the English Trust give full effect to the succession planning
required.
This issue is, of course, not only limited to properties
held in France by a société civile immobilière. The same
issues apply to property held by corporate structures in
other countries, such as Portugal. All of us need to be
aware of this problem and to consider whether the actual
manner of property ownership has any implications for
the owner’s United Kingdom tax liabilities.