Billions Missing in France Tax Fraud

Tax and social security fraud could be as high as €40 billion a year, according to a recent report from a French government committee.

This report concerns only underpaid sums, and not irregularities in the overpayment of social security benefits.

The government is believed to be losing €4.3 billion from individuals underpaying income tax and a further €4.6 billion from companies not paying corporation tax.

Up to nearly €15 billion may be underpaid in social security contributions, mainly from undeclared work. A lot of this occurs in the building sector, in cafes and restaurants and within the agricultural sector. The report also highlights the growth in under-reporting of income from internet based businesses.

The committee estimates huge irregularities are taking place over the payment of valued added tax, where they believe approximately €12 billion a year is going missing.

The VAT fraud is part of a European wide phenomenon, with countries such as the UK and Germany already having acknowledged that massive sums are being lost as a result of the so-called ‘carousel fraud’ that is taking place.

This occurs because of the ability of companies to import goods within the EU on a tax-free basis. When they are sold on in the supply chain, a VAT charge is applied, but the tax that is collected is not handed over to the government.

Goods may be exported and imported several times when an application for a VAT refund may be made, multiplying the tax losses.

In 2005 the French government recovered €239 million in underpaid tax from French companies, who were also given fines amounting to €481 million.

The level of recovery is estimated to be only about half the amount actually owed by companies, but which the tax authority choose not to pursue, either because of the fear of company closure or because of legal challenges.