Declaring taxes is not easy. Between taxable and non-taxable income, various deductions, ceilings... it is not always easy to navigate. However, a mistake can be costly and result in significant tax penalties.
Situations leading to a fine
An understatement, omission or inaccuracy in a taxpayer's tax return is considered tax evasion under the law. As such, tax evasion consists of using certain procedures to completely or partially evade paying tax.
The following actions are considered tax evasion:
- Intentional failure to submit a tax return;
- concealment of certain income or property in a tax return;
- deliberate organization of insolvency;
- any behavior aimed at evading or attempting to evade paying tax.
Tax penalties imposed for tax evasion may be reduced if the taxpayer acts in good faith.
Taxpayers resident in France must declare to the tax authorities accounts “opened, held, used or closed” abroad (Article 1649 A CGI). This wording, resulting from Law No. 2018-898 of October 23, 2018, against fraud, includes, as of January 1, 2019, dormant accounts or accounts acquired as a result of a gift or inheritance. In addition, if the taxpayer does not declare his assets held in accounts abroad, and if during the year the amount of assets held in these accounts exceeds 50,000 euros, the tax administration can collect a fine from the taxpayer within 10 years against 3 previously. This €50,000 threshold takes into account the total credit balances of accounts opened abroad throughout the year, not just the date 31 December (Bofip instruction dated 22 May 2019)
On July 1, 2019, the tax police was created. It consists of tax agents authorized to conduct legal investigations to establish facts of tax evasion and convict those responsible for these facts.
Related violations
The relevant offenses are defined in Section 1728 of the CGI General Internal Revenue Code. This article applies to refusal or delay in the filing of returns of any kind or in the production of documents.
The increase provided for in case of delay in fulfilling reporting obligations applies regardless of the nature of the declaration or the relevant action, provided that these documents are intended for the assessment or payment of tax.
This applies, for example, to the following declarations:
- Annual income declaration, as well as special income or profit declarations, even if the general income declaration was filed on time;
- declaration of industrial and commercial profits (BIC, simplified real or ordinary real mode);
- declaration of non-commercial profits (BNC, controlled declaration);
- farmers' declaration (BA, real simplified or real ordinary);
- declaration of capital gains (plus-values);
- declaration of companies subject to income tax (real profit or simplified regime);
- declaration of foreign companies with a representative office in France;
- monthly, quarterly or annual declaration of turnover;
- declaration of withholding tax on income from movable capital and deductions from investment products with fixed income and anonymous bonds;
- annual tax return for company vehicles;
- declaration of inheritance;
- wealth tax return (IFI);
- a declaration or deed providing access to registration fees or property tax (TPF);
- annual tax return for offices, retail premises and warehouses;
- declarations of real estate companies not subject to income tax;
- declarations of companies on joint ownership of real estate referred to in article 1655 ter CGI.
The nature of tax penalties in case of tax evasion
Intérêt de retard
In case of tax evasion, the tax authorities apply a penalty called intérêt de retard, the rate of which is 0.20% per month (from 1 January 2018) of the amount of tax actually due. Late payment interest is payable when tax evasion has resulted in less tax being paid than what actually should have been paid.
In accordance with Law No. 2018-727 of 10.08.2018, late payment interest is reduced by 50% (i.e. 0.10% instead of 0.20%) in case of unauthorized settlement by the taxpayer or by 30% (i.e. 0.14% instead of 0.20%) in in case of an omission or error identified during a tax audit.
From an income tax perspective, for example, an error in the 2023 income tax return for 2022, which results in a proposal for correction by the tax administration in December 2023, forces the taxpayer to pay a late fee for 6 months (from July 2023 . until December 2023).
For income tax, interest for late payment is accrued from July 1 of the year following the year in respect of which erroneous taxation was established.
Tax authorities in principle have a period of 3 years to audit tax returns. As an exception, this period was extended to 4 years for income taxes for 2019 for 2018. Thus, tax authorities will be able to make tax adjustments until December 31, 2022.
Tax penalties: penalties
In addition to late payment penalties, tax authorities may impose a fine on the perpetrator of fraud. The amount of these penalties varies depending on whether the taxpayer acted in good faith.
Thus, this tax penalty could be:
- 10% of the tax actually payable if the taxpayer is in good faith;
- 40% tax actually payable if the taxpayer acted intentionally;
- 80% of the tax actually payable if the taxpayer carries out undeclared work or illegal activities.
- 100% in case of objection to inspection.
As part of the strengthening of the fight against fraud, Law No. 2018-898 of October 23, 2018 provides for a fine for professionals providing legal, financial and accounting advice, as well as for holders of property or funds in the accounts of third parties who deliberately provided a service to their client, aimed at creating a fraudulent maneuver (Article 1740 A bis of the General Tax Code). This fine corresponds to 50% of the income received from the service provided, but cannot be less than 10,000 euros.
In order to improve the fight against tax evasion, tax authorities are authorized to experiment for 3 years until 2024 with the collection of personal data on social networks and on gaming platforms related to the Internet (Airbnb, LeBonCoin, etc.). If agents discover information indicating one or more violations among photographs and posts posted online, they may retain the data for one year for possible tax audit (Order No. 2021-148, Feb. 11, 2021).
Exception in case of good faith of the taxpayer
New margin for error before the tax administration
The principle of the right to make mistakes
The right to error is the opportunity for every citizen to make a mistake due to ignorance of the rule applicable to his situation, without the risk of a financial penalty for the first violation (Law No. 2018-727 of August 10, 2018 for the state in the service of a society of trust). This right applies to both individuals and companies.
In practice, if the declarant made an error in good faith, he will not be punished if he makes a spontaneous adjustment or within the required time after the Administration invites him to do so.
As part of the margin for error policy, the oups.gouv.fr website, intended for individuals and professionals, lists the main administrative errors and gives advice on how to avoid them.
Special case of taxes
Tax returns are an exception to the margin for error. Even if this is the first mistake, tax violations are subject to sanctions.
On the other hand, if the error was made in good faith, the taxpayer may benefit from a reduction in the late payment penalty:
- 30% when an error is identified during a tax audit;
- 50%, if the correction of the error was carried out in good faith by the taxpayer himself.
Tax Compliance Check
Resolution No. 2021-25 of January 13, 2021 created the Tax Compliance Check (ECF), which allows companies to ensure proper application of tax rules and thus increase their security in tax matters.
For companies, this involves concluding an agreement with a “service provider” who will prepare an audit for the reporting financial year, the contents of which are detailed by order dated January 13, 2021. The service provider may be an auditor, an accountant, a lawyer, an association of managers and accountants or an approved management body.
The document may be sent to the Directorate General of Public Finance (DGFIP) or retained by the parties until the right of collection by the tax administration expires.
This measure does not relieve the company of its obligations, but if the company has taken into account the auditor's recommendations, the tax authorities do not have the right to demand payment of penalties or interest for late payment.
Specific examples of tax penalties based on mistakes made
Late filing of the return
Article 1728 of the General Tax Code provides that a taxpayer who fails to timely file the return used to calculate the tax is subject to a 10 percent increase in the amounts due. This rate applies if the taxpayer files a late return on his own, in the absence of official notice, or if he files it within 30 days after receiving official notice. However, this increase can be increased to:
- 40% where, despite formal notice, the taxpayer has failed to comply after 30 days of notice by certified mail.
- 80% in case of detection of illegal activities (undeclared activities). In this case, the administration may apply such an increase without prior notice.
- Under the Property Tax (IFI), which replaced the ISF in 2018, the 10 percent increase provided for late declaration increases to 40 % if the deposit follows the discovery of undeclared assets abroad.
The Corrective Return Processing Service closed on December 31, 2017. As of January 1, 2018, Corrective Returns can be filed at any time, but do not allow you to take advantage of the penalty reduction.
Omission in the declaration
If the tax authorities discover that the taxpayer has submitted an incomplete return and that he has not declared all of his income or assets in the return he submitted, a surcharge will apply:
- 40% if the omission is voluntary or an abuse of rights;
- 80% in the case of fraudulent maneuvers or abuse of rights, where the taxpayer is the instigator of the abuse or is the primary beneficiary of the abuse of rights.
Please note: Taxpayers are not required to include their telephone number and email address on the printout of their tax return. This information is intended to facilitate communication with tax authorities. Therefore, no sanctions can be imposed if this information is not provided (Min. Rep. No. 11697, JO Senate Oct. 3, 2019)
Declaration of inheritance:
In matters of inheritance, the application must be sent to the administration within 6 months after death.
In case of delay or absence of declaration, special rules apply. From the 1st day of the 7th month following the day of expiration of the initial 6 month period (or from the 1st day of the 25th month following the day of expiration of the special 24 month period), an increase of 10%. If this return is not filed within 90 days of receipt of legal notice, an increase of 40% will apply.
In case of late payment of inheritance tax, the taxpayer is charged a penalty in the amount of 0.2% per month, to which is added:
- Increase in penalty by 5% from the 7th month after death;
- Increase by 10% from the 13th month;
- Increased by 40% from the 20th.
If a taxpayer's financial situation is particularly difficult, they may request deferment or installment payments to avoid such penalties. A request for a deferment can be sent to the administration in order to avoid paying a fine.
Not taxed
If a taxpayer is not subject to tax, they still need to declare their income to receive the tax exemption notice. However, in case of delay there will be no increase in payment.
Sources:
https://bofip.impots.gouv.fr/bofip/2174-PGP.html/identifiant%3DBOI-CF-INF-10-20-10-20170308
https://www.cabinet-roche.com/fr/retard-ou-absence-de-declaration-dimpot-les-sanctions/
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