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New Controls on Tax Evasion

New anti tax evasion measures increase the period over which the French tax authorities can act, writes Virginie Deflassieux of PKF (Channel Islands) Ltd.

The changes were introduced by the Loi de Finances Rectificative pour 2011, published on 28 December 2011.

The three year income and corporation tax 'enquiry window' has been extended to ten years.

The rule applies in respect of income or profits arising on undeclared accounts and life insurance policies held outside France, and profits from structures established in certain territories by French taxpayers.

The new extended period is now more in line with the present wealth tax back-assessment period and allows the French tax authorities a more joined-up approach, as back-assessment of wealth tax often exposes undeclared income.

The extended time-frame for enquiry is no longer restricted to assets held in uncooperative territories. As such, French tax enquiries and penalties may apply in respect of any non French accounts or policies, even if these are held in an EU country or non-EU territories which have signed a double tax treaty or a Tax Information Exchange Agreement (TIEA).

By exception, the ten year tax enquiry window does not apply if the aggregate funds held in unreported accounts do not exceed €50,000.

It is specified that the enquiry period also applies to trustees’ disclosure obligations in respect of trusts which own French assets or which have French resident settlors or beneficiaries (see also our July 2011 and January 2012 bulletins).

This new measure applies from 30 December 2011, so tax years up to 2008 inclusive are “closed” in terms of any enquiries. However, tax year 2009 which would have been closed at 31 December 2012, will now remain open for enquiries up to 2019, in the circumstances described above.

Going forward, the ten year period applies for all tax years post 2009.

This new measure, when combined with other recent tax measures is, no doubt, designed to provide an extended period during which the French tax authorities will be able to deal with any lengthy enquiries with other jurisdictions, and to generally counter perceived tax evasion.

Article 58 has also introduced a new accelerated enquiry procedure in order to 'test' the goodwill of territories which have signed a TIEA or an assistance agreement with France within the last three years. In certain cases, this process may even be conducted without the targeted taxpayer’s knowledge.

According to the French Government figures, out of the 230 requests for information issued to date by the French authorities to territories such as Andorra, Switzerland, Malta and Jersey, only 30% produced responses as at 31 August 2011.

Two years ago the French authorities had already announced that territories may find themselves on the French list of uncooperative territories if the assistance agreement was deemed ineffective.

For further information you can contact Virginie Deflassieux at french.tax@pkfci.com.

This article was featured in our Newsletter dated 01/02/2012

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