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This chapter is not exhaustive and is limited to broadly outline the tax consequences of the main events occurring when doing business in France. It does not constitute a tax advice or a client - attorney relationship. Materials are not suitable for tax analysis. Visitors are invited to consult a tax lawyer before taking any decision.
 Abuse of law (fraus legis)
Tax fraud
Obstruction to tax audit
Collective refusal to pay tax
European Coordinated fight against international tax fraud
Non disclosure of foreign bank accounts
 Abuse of law (fraus legis)
Pursuant to section L 64 of the French tax litigation code “LPF”, the French tax authorities have the right to disregard the form of an apparently legal transaction and rather search the parties' real rather than purported intentions.
This provision may apply when the only purpose of the legal acts entered into by the parties is to obtain a lower taxation or to conceal a transfer or a realization of income. In addition an intent to conceal or act fraudulently is necessary. The legitimate desire to choose one of many available legal structures that results in the lowest tax incidence is out of the scope of the abuse of law.
The abuse of law provision applies to corporate and personal income tax, registration duties, wealth tax, VAT and since 2004 business tax "Taxe professionnelle".
A special consultative committee may be consulted by the taxpayer or by the authorities before applying the "abuse of law" procedure. If the Committee is not consulted, or if the tax authorities runs counter to the Committee's findings, the burden of the proof lies with the tax authorities. If the contention of the Administration is supported by the Committee, the burden of proof lies with the taxpayer.
If the contention of the Administration is upheld, a special fiscal fine, equal to 80% of the amount of the real assessment, may be imposed on top of the tax assessment based on the parties’ real intentions.
In 2002, the French committee for the repression of abusive tax plan rendered 39 opinions in favor of the French tax authorities and 4 opinions in favor of taxpayers. The majority of favorable opinions is about personal income tax (16 opinions out of 19 targeting capital gain tax avoidance), registration duties (11 out of 14 trying to avoid inheritance tax by treating a donation of real property as a sale) and corporate income tax (1 opinion about a prohibited trade of deficit).
WARNING:
PEE – PEA: When shares of non listed companies are transferred to PEE or PEA (Saving plans exempt of capital gain tax), it is important to do it at market value to avoid that the French revenue considers that the use of a PEA or a PEE is an abuse of law (fraus legis) ( 80% penalty).
LUXEMBOURG – Holding 1929: Le Conseil d’Etat a jugé que l’utilisation par un résident fiscal français d’une holding 1929 dépourvue de substance constituait un abus de droit.
EU - Liberté d’établissement: Le Conseil d’Etat a en outre indiqué que l’abus de droit était compatible avec le principe de liberté d’établissement prévu par l’article 43 du traité instituant la Communauté Européenne.
Tax fraud
A tax payer, who intentionally and fraudulently tried or did not pay the taxes he was normally subject to, is liable of a fine up to 37 500 euros maximum and imprisonment of 5 years maximum.
Should the taxpayer carried out a business activity without issuing invoices or used intentionally falsified invoices or tried or obtained intentionally a tax refund he was not legally entitled to, the fine is up to 75 000 euros. Fine is up to 100 000 euros maximum and imprisonment of 10 years maximum in case of repeated offense in a 5-year period following a first offence. A 80% tax penalty is added on top of fine and/or imprisonment.
Offence is always made public. All parties to the tax fraud are subject to the same fines and imprisonment. The court may decide that all parties to the offence are joint and several for the payment of the tax assessment plus interest and penalties.
Obstruction to tax audit
Joint obstruction and/or repeated individual obstruction to tax audit are punished by a tax fine up to 7 500 euros maximum and imprisonment of 6 months maximum.
Tax authorities have right to assess tax only by using information they have and to apply a tax penalty of 150% plus late interest.
Collective refusal to pay tax
A ssaults and batteries or coordinated refusal to pay tax is subject to a fine of 9 000€ and 2 years of detention.
Inducing to refuse or delay the tax payment incurs a fine of 3750€ and 6 months poisoning.
Coordinated fight against international tax fraud
Ministry of Budget announced his support to the creation of EUROFISC, a supranational body to increase the fight against international tax fraud through an strengthening of the European tax cooperation in this field.
Non disclosure of foreign bank accounts
According to article 1649 quater A CGI, individuals must report non bank cross border transfers of funds. In case of report failure the funds are deemed taxable earning. This assumption allows the tax authorities to include the funds in the taxable earnings of the taxpayer whatever the country of origin or destination. However taxpayers may challenge the assumption and demonstrate the funds are not taxable or were already taxed.
Status of limitation is extended to 10 years and penalties are increased from 750€ to 1,500€ in most cases. A 10,000€ penalty may apply when the account is located in a country having no treaty with France authorizing the access bank data exist.
Regularization unit for non disclosed foreign bank accounts
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