Regularising an Undeclared Foreign Account: What to Do If You Forgot to Declare It?

A French tax resident must in principle declare every year the accounts opened, held, used or closed abroad. Where one or more accounts have been omitted, the tax, and even criminal, consequences may be significant. Solutions do exist, however, and whether they are appropriate depends on each situation.

This article describes what is at stake in regularising an undeclared foreign account, the content of the file, the most delicate situations and the points to watch when a letter from the tax authorities is received. As every situation is different, a lawyer’s analysis generally makes it possible to measure the risks and determine the most appropriate course of action.

Understanding the issues

Holding a bank account abroad is not, save for exceptions, unlawful. What is in principle penalised is the failure to declare it. The declaration is, as a general rule, made every year on form no. 3916-3916-bis, by ticking box 8UU of the income tax return. The form asks in particular for the identity of the holder, the bank’s details, and the account number and opening date, but not its balance.

Independently of this reporting obligation, the income generated by the account (interest, dividends, capital gains) is in principle taxable in France for a French tax resident and should therefore have been declared. The rules are detailed on the page on foreign bank accounts.

Voluntary regularisation: advantages and limits

Where an account has been forgotten, it is in principle possible to regularise the situation voluntarily, as long as no procedure has been initiated. Since the closure of the so-called STDR scheme at the end of 2017, regularisation has been subject to the ordinary rules: it does not, in principle, remove the applicable fines and surcharges, and its cost may be close to that of a tax audit. Late-payment interest (0.20% per month) may, however, be reduced subject to conditions where amended returns are filed voluntarily.

Voluntary regularisation nevertheless has several advantages:

• a criminal risk that is in principle reduced;
• a context often more conducive to discussion with the tax authorities, in particular on penalties;
• an end to the uncertainty linked to an undeclared situation and to the risk of an audit.

Whether it is appropriate deserves to be examined carefully, however: in some cases, in particular where the origin of the funds cannot be proven, regularisation may have very serious consequences. A prior analysis with a lawyer generally makes it possible to measure its cost and risks.

The content of a regularisation file

A regularisation file is often substantial. It generally includes:

• a precise account of the origin of the funds, with all available supporting documents;
• a sworn statement that the file covers all undeclared accounts and assets;
• amended income tax returns (forms 2042 and 2047) for the years not yet time-barred, in principle up to ten years;
• forms no. 3916-3916-bis for the years concerned;
• where applicable, wealth tax (ISF) returns for years before 2018 not yet time-barred or IFI returns, as well as omitted gift, inheritance or capital gains returns;
• statements of assets (balances at 31 December) and annual statements of income, gains and losses issued by the bank.

The cost of regularisation depends mainly on the number of years concerned and the amount of the assets: it may be limited where the account has generated little income and the origin of the funds is established, or high otherwise.

The two most delicate situations in a regularisation

• The origin of the funds cannot be proven. The tax authorities may then request justification (article L23 C of the Tax Procedure Code, LPF) and, in the absence of a sufficient reply, subject the unjustified assets to gift and inheritance tax at the rate of 60%, calculated on the highest value of the account during the previous ten years.
• Undeclared sums have been paid into the account, for example professional income, during the last ten years. The tax authorities may then tax them, with late-payment interest and surcharges of up to 80%.

Outside these situations, voluntary regularisation may, depending on the case, be an appropriate solution, even if its cost often remains significant.

The cost of regularisation

Depending on the case, the tax cost consists of the following items:

The applicable time limits are detailed in the article on limitation periods for undeclared foreign accounts.

The letter from the tax authorities (no. 751-SD)

Many taxpayers discover the situation on receiving a letter from the tax authorities, often referenced 751-SD, sent following information received from abroad. This letter recalls that residents of France are taxable on all their income, including foreign-source income, and that they must declare their accounts and life insurance contracts held abroad. It invites the taxpayer to comply by providing in particular:

• amended income tax returns and forms no. 2047 for income received abroad;
• forms no. 3916-3916-bis, one per account;
• a written statement of the origin of the assets, with supporting documents, and a sworn statement;
• statements of assets and annual statements of income, gains and losses issued by the foreign banks.

This letter does not, in itself, open an audit procedure in the legal sense: it is a non-binding request. Failing to reply, or replying very incompletely, may however lead to a tax audit being opened, which is more binding (summonses, requests sent to banks, etc.); in the absence of cooperation, the tax authorities may then be entitled to assess the tax bases ex officio, with the burden of proof resting on the taxpayer. In many cases, a prompt, precise and complete reply, prepared with a lawyer, is therefore preferable.

Forms no. 3916 and the question of sub-accounts

In principle, each account is the subject of one form no. 3916 per year. As the fine is, as a general rule, due per undeclared account, the question arises where there are sub-accounts attached to the same main account. Where a sub-account shares the root number and the opening date of the main account, it may in principle be declared together with it; in other cases, the answer depends on each situation.

Example: a taxpayer holds a separate current account and savings account at the same foreign bank. If they constitute two accounts, two returns are in principle due each year; over four years not yet time-barred, the fine could reach €12,000 (2 accounts × €1,500 × 4 years).

Before 2019, the obligation only covered accounts opened, used or closed: an unused account (with no transactions other than interest credits) did not give rise to a fine for the years concerned. Since 1 January 2019, accounts that are merely held have also been covered.

Documents to request from the bank

The necessary information generally has to be requested from the foreign bank: certificates of opening and, where applicable, closure of each account, useful for forms no. 3916, and, for each year concerned, a summary document showing the balance at 31 December and the year’s income by type (interest, dividends, capital gains or losses). These documents make it possible to prepare the income tax returns and, where applicable, the ISF or IFI returns.

The first points to examine before a regularisation

• an analysis of the situation with a lawyer experienced in regularising foreign accounts, to measure the issues and whether regularisation is appropriate;
• gathering documents: evidence of the origin of the funds and bank statements for the last ten years;
• an assessment of the taxpayer’s own situation, rather than generalities, as every situation is different;
• an organised approach, which often helps reduce the anxiety linked to the situation.

What I see in my cases

The reporting omissions I deal with often involve large amounts, and the tax authorities, once informed, make full use of the information they have. Some situations are particularly delicate: a power of attorney over a relative’s account, without ever having touched the funds; transfers between family members or friends, a widespread practice in Asia, where each flow in principle needs to be justified so as not to be treated as a gift; sub-accounts opened by the bank without notice. In each of these situations, the way the file is presented and, in some cases, negotiated can make a big difference to the final amount, with no guarantee of result.

Discovery almost always comes through a letter from the tax authorities, informed by the automatic exchange of information, and the forgotten accounts are mainly securities accounts, life insurance policies and retirement accounts. Those who have tried to regularise on their own have often given overly detailed answers, or answered beyond the question asked: the tax authorities then pull on the thread and unwind the ball of wool, with new questions. Even for a dormant or low-balance account, fines are often applied; I build the file from the outset so as to preserve a chance of avoiding them; if there are any, it is possible, in some cases, to negotiate them, with no guarantee of result.

FAQ

Read more

• Request to Regularise an Undeclared Foreign Account: What to Do and What to Expect
• What Fines Apply for Failing to Declare an Account Abroad?
• Undeclared Foreign Account: Limitation Periods