France and Tax Fraud
France and Tax Fraud
In recent years, the French government has made the fight against tax fraud one of its top priorities. The stated aim is to increase by 60 percent the amount of detectable fraud. A number of measures have been taken in the last few months which impact individuals.
Foreign Bank Account Reporting
Amended Finance Law for 2008 (article 1736, IV of the French General Tax Code) had already increased penalties for failure to declare foreign bank accounts. Fixed at EUR 750 per account, penalties had been imposed at EUR 1,500 in general cases, and EUR 10,000, when the account is maintained in a country with which France has not signed any tax assistance agreement.
Penalties for failure to declare foreign insurance policies are set at a rate of 25 percent of the sums transferred. When the taxpayer can prove to the authorities that the French Treasury has not borne any damages, the penalty rate is reduced to 5 percent and the penalties are capped at a new ceiling of EUR 1,500 per contract (EUR 750 previously).
FIDAL Direction Internationale Note
FIDAL in France has noted an increase in French tax authority activity in this respect with more requests for information on foreign bank accounts being sent to individual taxpayers.
Reigning in Tax Evasion
France also created a “regularization cell” in its tax administration structure in order to provide an opportunity for taxpayers to clear their situations with the French tax authorities. French tax residents who hold undeclared bank or securities accounts abroad can contact the regularization cell, directly or via an attorney-at-law, until 31 December 2009. As a minimum of two months are necessary to register a case, the tax authorities could potentially continue to register applications until the deadline, negotiating during the first trimester 2010 if need be.
Once declared, there is no obligation to repatriate the funds to France.
Taxpayers who contact the regularization cell before 31 December 2009, will not be subject to a criminal prosecution. Nevertheless, they will have to pay the taxes due together with interest and penalties (which could be as high as 40 percent).
Taxpayers who opened a foreign bank account during an international assignment and forget to declare the account upon their return to France are considered as “passive evaders” by the French tax authorities. Tax officials will generally be more tolerant and, after negotiations, could reduce the penalty to 10 percent.
The prescribed period is equal to the current year and the three past years for French income tax, the current year and the six past years for wealth tax, and six years for inheritance tax, which means a maximum of three amended income tax returns and seven wealth tax returns.
As of 1 January 2010, taxpayers who will not have regularized their situations could face criminal prosecution.
Dealing with Tax Havens and Non-cooperative States
France has signed tax assistance agreements with Andorra, Saint-Marin (San Marino), and Liechtenstein. Such agreements are in the process of being negotiated with Gibraltar, Cayman Islands, and Turks and Caicos Islands. They should be added to the list of the countries which concluded (1) agreements with France before summer 2009 (Guernsey, Jersey, Isle of Man), and (2) amendments to existing double taxation agreements (signed with Belgium, Luxembourg, and Switzerland).
Article 14 of the draft Amended Finance Law for 20091, introduces the notion of “non-cooperative state” as a country or territory that is not a member state of the European Union, was under examination by the OECD, and that will not have signed any administrative and tax assistance agreements by 1 January 2010 with France and twelve other countries. The list of countries will be adjusted to include states that do fulfill these requirements but whose assistance with France’s administration and tax authorities is deemed to be ineffective.
New Penalties
Under the Draft Amended Finance Law for 2009, residents of France who receive dividends and interests from a non-cooperative state will be subject to French tax at a rate equal to 50 percent.
Individuals who receive income from offshore entities are a particular focus of the French government. Article 123 bis of the French tax code applies to individuals who hold a minimum 10-percent stake in an offshore entity (whatever the type of entity, company, trust, etc.); it is a see-through clause that allows France to tax the income of the entity regardless of whether the income was actually distributed. The 10-percent stake will now be presumed to be the case.
Source: KPMG
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