Major consequences for French tax residents who fail to disclose foreign bank accounts

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Supreme Court confirms swingeing tax consequences of dealing with undisclosed accounts complies with EU law.

French tax residents are subject to a general obligation to declare the details of their foreign bank accounts to the French tax administration.  Failure to comply with this obligation results in a financial penalty of 1,500 EUR.  When the bank account is held in a country with which France has not signed a tax treaty containing an administrative assistance clause allowing access to bank information, the penalty is increased to 10,000 EUR and the standard statute of limitation of three years is extended to ten years.  In addition, sums transferred in or out of France using a non-declared foreign bank account are presumed to be taxable income, subject to the possibility to provide evidence that the sums are non taxable.  The tax adjustments are increased by a tax penalty of 40%, plus interest of 4.8% per year.

The French Supreme Court recently confirmed the extensive scope of the declaration and also settled the question of the compliance of this tax obligation with EU law.

The tax declaration covers bank accounts opened, used or closed out of France during a given tax year by a French resident taxpayer.  A bank account is considered to have been used by an individual when such individual has initiated a credit or debit movement on the account, either for own account or for the account of a third party.  All foreign bank accounts are covered whether or not the sums transferred through such bank account generates a liability to tax in France.

The French Supreme Court confirmed that the penalty applies to an individual who used but failed to declare a foreign bank account opened in the name of her partner as well as a personal bank account used to receive non taxable sums such as monies from a foreign estate (CE 30 December 2009 n° 299131, 10e et 9e s.-s., Lisiak).

The compliance of this tax obligation with EU legislation was also challenged before the French Supreme Court in  December 2010, when it ruled that the obligation imposed on French tax residents to declare their foreign bank accounts does not constitute an unjustified restriction to the free movement of capital and can therefore not be held to violate EU law.  The Court justified its position by the fact that the tax obligation is purely declarative and that the sums transferred through an undeclared bank account are only treated as taxable income if the taxpayer is not in a position to provide evidence of the contrary. The obligation is aimed at combating tax fraud and the resulting restriction imposed on the taxpayer does not go beyond what is necessary to achieve this objective.

Resources

Article 1649 A French Tax Code (FTC); Article 344 A Appendix III to FTC; Conseil d’Etat 30 December 2009 No. 299131, Lisiak; Conseil d’Etat 17-12-2010 n° 330666

For further information or to discuss any of the issues raised please contact Pascal Ngatsing on +33 1 53 93 94 00