Mutual Funds and Unit Trusts

Article 12 of Law nø 93-1444 of 31 December 1993 provides that the compensation paid to the recipient of securities in pawn constitutes income from a receivable and must therefore be recorded and taxed as interest. Any income earned by such securities during the pawn period has to be paid back by the recipient to the owner. Such payment is taxed as income from securities held by the owner. Instruction 4 K-1-94 of 14 December 1994 issued by the French Tax Authorities states that these rules apply to mutual funds and unit trusts able to take and place securities in pawn.

The same instruction states that the specific regime applicable to mutual funds and unit trusts regarding compensation paid to the purchaser for a sale with an option of repurchase (r‚m‚r‚) will no longer apply as of 1 January 1995. Compensation accrued after this date will be treated as income from a receivable taxable under ordinary law rules without any standard deduction.