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Undeclared Payment Costs Property Seller

A property seller in France who devised a scheme to reduce their capital gains tax liability comes unstuck.

As we have reported previously in these pages, making undeclared payments for the purchase of property in France is not uncommon, a practice known as a 'dessous de table'.

It is of course illegal, but more often than not it goes undetected, and even notaires will frequently turn a blind eye to it.

However, such payments do leave a trail, which can be exposed should buyer and seller later fall out.

In a case heard recently in the French Supreme Court, the Cour de Cassation, a buyer had purchased agricultural land from a farmer for €50,000.

At least, that was the sum declared to the notaire and paid by the buyer, but there also existed a side agreement between buyer and seller that was not disclosed to the notaire.

Under the agreement, the buyer gave four signed cheques to the seller each of €6,250, amounting to €25,000 in total.

However, when the seller subsequently sought to cash the cheques they were rejected by the bank on the instructions of the buyer, who had cancelled the cheques.

As a result, the seller brought a legal action for payment of the €25,000.

The seller stated in court that the €25,000 was for the purchase of hay prior to the land sale taking place.

However, in evidence to the court it was established that the invoices for the hay were false and that the agreement for sale of the hay been entered into the day after the land sale.

The court established that the cheques were merely a device to relieve the seller of their liability to capital gains tax on the sale of the land by a 'dessous de table'.

Despite the fraudulent nature of the agreement, the lower courts ruled in favour of the seller, arguing that the buyer could not rely on their own turpitude to try and avoid the obligation to pay.

Nevertheless, this decision was overturned by the Supreme Court who ruled that an obligation for a false cause, or for an unlawful cause, cannot have any effect, as a result of which they relieved the buyer of any obligation to pay the seller the sum demanded.


This article was featured in our Newsletter dated 06/06/2019




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