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French Taxation

French Taxes Paid Abroad Not in France

Tuesday 04 May 2021

A French court has recently ruled on a business owner who declared their income in their country of origin, not in France.

The case concerned a Polish national, who since 2005 ran a building company in France.

In 2011 the public prosecutor's office in Lyon opened a criminal investigation for a concealed business activity, alongside which a tax investigation was carried out.

The tax authority established that the business owner had never registered the business in France and that the business income had never been declared in France, despite being active for at least 6 years.

Accordingly, the authority imposed taxes and social security contributions on the estimated income of the business, in addition to a 80% penalty charge for not having declared the activity or the income.

The business owner brought a legal action contesting the decision, claiming that his failure to make either a business or tax declaration had been an error, as the business was run by his Polish registered company and that he declared the income and paid taxes in Poland.

The case eventually ended up in the Conseil d’Etat, the supreme administrative court.

Statute law in France is very clear that a failure to declare a business activity in France is an offence. Where the activity is undeclared the tax authority have the right to claim up to 10 years unpaid taxes.

Nevertheless, in jurisprudence the courts have accepted a ‘right of error’ by the plaintiff if they can demonstrate that there was no intention to disguise the activity and that the failure to declare was an error may be mitigating circumstances.

In considering whether an error occurred the courts will consider whether the plaintiff fulfilled their tax obligations in the other country and any difference in the level of taxation between the two countries. The court would also examine the level of exchange of information between the two countries.

Thus, in a case in 2018 involving a UK based company which was involved in cross-borders activities, with a small base in France, the courts deduced that, given taxes were paid in the UK, which was little different from those payable in France, the company may have misunderstood its obligations. As a result, although the company was considered to be liable for French taxes on their France based activities, they were relieved of any penalties.

Although in this latest case the business owner declared the income in Poland, there was a significant difference in the tax liability, with €7,085 paid in Poland, against a potential liability of €20,938 in France.

As a result of that comparison the court decided that the business owner, who had carried out the activity for many years in France, could not rely on a misunderstanding of the scope of his obligations in France.

 In law, if you are resident in France and you are running a business, you need to become business registered.

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