What Fines Apply for Failing to Declare an Account Abroad?

Accounts opened, held, used or closed abroad during the year concerned must in principle be declared at the same time as taxable income. Because of the agreements on banking information, which allow the tax authorities to receive banking information on French tax residents, some taxpayers may receive a return with box 8 UU (the box relating to the holding of accounts abroad) already ticked.

It may then be useful for the taxpayers concerned to analyse their situation, ideally with a lawyer, in order to check that all their accounts abroad have been declared: failure to declare accounts abroad may indeed expose them to heavy penalties. In addition, the agreements on the automatic exchange of banking information make it easier for the tax authorities to trace people who hold accounts abroad.

This article presents the various fines and penalties provided for by the regulations in force. If you have forgotten to declare one or more accounts abroad, whether it is advisable to regularise your situation can be examined with your lawyer, in order to fulfil your reporting obligations and to avoid, or at the very least limit, the risks to which you are exposed in the event of a tax audit.

What are your reporting obligations for accounts held abroad?

Every tax resident of France must in principle declare, each year, the accounts they hold abroad.

However, some taxpayers have, deliberately or through simple oversight, failed to make these declarations.

When filling in your tax return form no. 2042, if you discover that box 8 UU corresponding to accounts held abroad is already ticked, this means in principle that the tax authorities have received information about you indicating that you may hold one or more accounts abroad.

Indeed, as the holder, beneficiary, joint holder or simply the beneficial owner of an account opened, held, used or closed abroad, you are in principle required to declare it every year.

This declaration is in principle made on form no. 3916. A French tax resident, including in the case of dual tax residence, in principle remains subject to this obligation, even if they have already declared these accounts or paid tax in another country.

Inactive or dormant accounts held abroad are, in principle, also covered.

Note: PayPal accounts are opened with an institution located in Luxembourg. They are therefore in principle to be declared along with accounts abroad, unless the following three cumulative conditions are met:

• the account is used to pay for online purchases or to collect receipts from the sale of goods;
• it is linked to another account opened with an institution located in France;
• total receipts for the year do not exceed €10,000.

If these three conditions are not met, the PayPal-type account is in principle to be declared on form no. 3916.

Where an account abroad has not been declared on time, a regularisation may, depending on the case and after analysis with a lawyer, be considered in order to limit exposure to the tax and criminal penalties provided for. Note: the reassessment period for income tax in principle remains 3 years where the total credit balances did not exceed €50,000 at any time during the year concerned; above this threshold, it is in principle extended to 10 years.

What fines and penalties apply in the event of non-declaration?

Where a taxpayer holds one or more accounts abroad and does not meet their reporting obligations, whether deliberately, through simple oversight or through lack of knowledge, the tax authorities may in principle impose a fine of €1,500 per account and per year. This fine may be increased to €10,000 per account and per year where the account is opened in a State or territory that has not concluded an agreement with France allowing access to banking information.

Where assets are not declared, other penalties may also apply, such as an 80% surcharge on the duties reassessed for ISF (for years before 2018), IFI, income tax and social security contributions.

If tax fraud is established following the investigation by the tax authorities, criminal proceedings may in certain cases be brought, and you are then in principle liable to a fine of up to €500,000 (€3,000,000 in the event of aggravating circumstances, or twice the proceeds derived from the offence) and a prison sentence of 5 years (7 years in the event of aggravating circumstances).

Since the law of 23 October 2018 on combating fraud, the tax authorities are in principle required to report to the public prosecutor cases in which the duties reassessed exceed €100,000 and carry certain surcharges (100% or 80%, or 40% in the case of repeat offences). Below this threshold, or in the absence of these surcharges, the tax authorities in principle decide themselves whether to refer the case to the prosecutor.

If you have not declared accounts abroad and you do not proceed with their voluntary regularisation, hoping that this will go unnoticed, it should be noted that banking information is increasingly accessible and various systems now enable the tax authorities to detect undeclared accounts abroad more quickly and more easily.

In general, when the tax authorities receive the list of French tax residents who have opened, hold or have closed an account abroad and these accounts have not been declared, a request for information is sent or box 8UU of form 2042 is directly pre-ticked.

In practice, the request for information is generally sent for the largest accounts; for the others, the tax authorities usually simply pre-tick box 8 UU of return no. 2042.

If you receive this request for information, it is advisable to contact a tax lawyer quickly to analyse your situation and assist you in drafting the reply, as the reply will bind you for the rest of the procedure. A clear and precise reply within the deadlines set is generally preferable.

The request in principle concerns, in particular, the origin of the funds held in the account: failing justification, the assets may in certain cases be taxed at the rate of 60% (gift and inheritance duties, article 755 of the CGI). Other penalties and surcharges may also apply, depending on the situation. Gathering the relevant supporting documents with the help of a lawyer may help to limit these penalties, whose total amount can quickly reach very high levels.

In the event of a request for information (the number 751-SD in principle appears in the top right-hand corner of the letter), it is advisable to first analyse the situation with a lawyer: in many cases, it may be appropriate to take this opportunity to regularise the situation by providing the supporting documents requested by the tax authorities. The reply and the documents are in principle sent to the department that issued the request for information.

The officer in charge then carries out the review of the file.

Voluntary regularisation: a step that may limit fines and penalties

If the box relating to accounts abroad is pre-ticked on the return, it may be prudent not to untick it without having made sure that it is indeed an error by the tax authorities. A careful analysis, with a lawyer if necessary, makes it possible to check whether or not one holds an account abroad. If so, the account is in principle to be declared on form no. 3916, and foreign income (interest on a savings account, for example) is in principle to be reported on returns no. 2042 and 2047.

Then, depending on the case and after analysis with your lawyer, a regularisation of your accounts abroad for past years may be considered. This process in principle requires the production of a file made up of numerous supporting documents; the help of a qualified professional such as a tax lawyer can make it easier to gather them.

In principle, regularising accounts not declared abroad does not exempt you from the fines and surcharges provided for. The more favourable conditions of the tax compliance unit (STDR), which applied reduced surcharges, ended on 31 December 2017; today, a voluntary regularisation mainly makes it possible to halve the late-payment interest, subject to conditions, and to limit the risk of criminal prosecution.

The tax authorities in principle expect a regularisation file that is complete and meets their requirements. For example, the following documents are generally requested:

• amended income tax returns;
• declaration of foreign-source income on form no. 2047;
• declaration of the accounts opened, held, used or closed abroad on form no. 3916;
• a written note on the origin of the funds held in the foreign accounts, accompanied if possible by documents proving it;
• annual income statements and asset statements;
• annual statements of the gains and losses recorded on the foreign accounts;
• a sworn statement that the declared accounts are the only ones held abroad.

Focus on the penalties applicable in the event of tax fraud

Because of the international convention automating exchanges of banking information, the tax authorities now receive banking information from many countries. The tax authorities therefore trace more easily the taxpayers who hold accounts abroad. These measures were introduced to reduce the scope for tax evasion. Taxpayers who have not declared their accounts abroad at the same time as their income may nevertheless, depending on the case, consider a voluntary regularisation of their situation in order to limit the penalties.

If the taxpayer does not reply to the request for information issued by the tax authorities, tax and criminal penalties may in certain cases be applied.

The tax authorities may impose high tax surcharges and bring criminal proceedings against recalcitrant taxpayers who do not fulfil their legal obligations. Not only are the surcharges provided for very high, but the tax authorities in certain cases bring criminal proceedings, which taxpayers often find very hard to bear. If you find yourself in this situation, it is recommended that you call on a tax lawyer to help you limit the penalties.

In the case of fraudulent concealment of income abroad in order to evade tax in whole or in part, the criminal penalties incurred may be up to a fine of €500,000 and 5 years’ imprisonment. Heavier penalties are provided for where the offence was committed by an organised gang or by means, in particular, of accounts opened abroad: the fine may then reach €3,000,000 and imprisonment 7 years. Note: the criminal court may increase the fine up to twice the proceeds of the offence.

The "material and intentional" constituent elements must be established for the tax authorities to be able to establish the offence of tax fraud. In other words, the tax authorities must:

• Provide evidence of the existence of material facts that enabled the total or partial non-payment of taxes;
• Prove the taxpayer's deliberate intention to commit fraud.

The offence of tax fraud follows a specific procedure: apart from cases of mandatory reporting to the public prosecutor’s office (article L228 of the LPF), the public prosecutor may in principle bring proceedings only on a complaint from the tax authorities. Before filing a complaint, the tax authorities refer the matter to the Tax Offences Commission (Commission des infractions fiscales, CIF), whose favourable opinion is required; the complaint is then filed with the public prosecutor.

Note: the most serious cases of tax fraud are in principle reported to the public prosecutor’s office by the tax authorities (article L228 of the LPF).

What I see in my cases

Fines are only part of the bill, and it is possible, in some cases, to negotiate them. When regularising, I explain the context of the situation to the tax authorities, for example a bank that had assured its client that everything was in order in France, or sub-accounts opened without the client’s knowledge. This does not erase the fines, but may, depending on the case, help to reduce them; as every file is different, no result can be guaranteed.

Dormant accounts or accounts with a low balance are not spared: fines are often applied all the same, because that is the law. I therefore build my files, from the start, so as to preserve a chance that there will be no fines; if there are, a negotiation may, in some cases, be attempted, with no guarantee of result.

FAQ

Read more

• Which Foreign Bank Accounts Must Be Declared in France?
• Form 3916: how to declare a foreign account, step by step
• Undeclared Foreign Account: Limitation Periods
• Request to Regularise an Undeclared Foreign Account: What to Do and What to Expect
• Undeclared Revolut, N26, eToro, Wise or Degiro Account: What to Do