In the last issue, I referred to some of the EU issues arising from the US Foreign Account Tax Compliance Act (FATCA).

Since then, I seem to have spent most of my time considering the various reporting and other tax obligations for administrateurs, constituants and beneficiaires under the changes to the French tax code put in place in July 2011.

The position has not been helped by the late issuing of the relevant décret on 14 June and the subsequent release of non-obligatory forms 2181 TRUSTS1 and 2181 TRUSTS2. At the time of writing, the anticipated form of instruction has still not been issued, even though all the deadlines have passed. These were originally 15 June 2012, then 15 September 2012, and finally 30 September 2012.

Trustees and personal representatives, who have been faced with the obligation to report, have been considering the conflicting issues of confidentiality and enforceability; trapped between a penalty of 5 per cent of the value of the trust assets on the one hand, and claims for breach of confidentiality on the other.

The principle set out in Government of India v Taylor has been dying for several years. The mood music is now that governments need to collect more tax and are increasingly cooperating in enforcement and exchange of information. The Council of Europe Convention 127 on Mutual Assistance in Tax Matters has been ratified by Australia, Azerbaijan, Belgium, Denmark, Finland, France, Georgia, Iceland, India, Italy, Korea, Mexico, Moldova, the Netherlands, Norway, Poland, Slovenia, Spain, Sweden, Ukraine, the UK and the US.

In addition, the EU has passed Regulation (EU) No 1189/2011 of 18 November 2011 and the Mutual Assistance in Recovery Directive 2010/24/EU.

If trustees or personal representatives outside all of these states were to rely on non-enforceability, they might find themselves increasingly isolated.

Whether disclosure might be a breach of confidentiality has been a question also raised by many trustees and personal representatives.

The recent Guernsey Court of Appeal decision of 31 July 2012 in Re B, Appeal No 420, issued by Pleming JA, has considered the issue further.

In Viscount v Attorney General [2002] JLR 268, Birt DB said at para 21:

‘A trust company owes a duty of confidentiality to its clients in respect of their affairs. Thus a settlor or beneficiary of a trust or a beneficial owner of a company who communicates with the trust company which administers his structure is entitled to expect that the trust company will not disclose such communications voluntarily. The duty is akin to the duty of confidentiality owed by a banker.’

Is that a comparison to be welcomed?

The Guernsey Court of Appeal in Re B accepted that a trustee is under a duty to keep the affairs of the trust confidential.

‘In many respects, this duty is akin to the duty of confidence owed by a bank in relation to the affairs of its customer. However, the duty of a trustee is not identical to that of a bank. In the first place, it does not arise as a matter of contract. Furthermore, there will be many cases where a trustee has to disclose information concerning the trust and/or its beneficiaries for the very purpose of administering the trust, e.g. in order to open a bank account or obtain a loan… The duty, and its limits, of a bank are the same in Guernsey as in England and Wales and are set out in Tournier v National Provincial and Union Bank of England [1924] 1 KB 461…’

We therefore accept that the duty of confidentiality implied into the relationship of trustee and beneficiary is subject to the qualification that ‘the [trustee] has the right to disclose such information when, and to the extent to which it is reasonably necessary, for the protection of the [trustee’s] interest.’

The position in other jurisdictions will, of course, be different. Triggering a non-reporting penalty in France, however, may result in a money-laundering disclosure obligation in another jurisdiction.

The Le Creuset frying pan may get rather hot.