Tax Audit and Regularisation of Foreign Accounts: Obligations, Risks and Defence

Key points

• Reporting: every bank account, life insurance policy, savings account, securities account or digital asset account opened, held, used or closed outside France must in principle be reported each year (form no. 3916-3916-bis).
• Penalties: fixed penalty of €1,500 per undeclared bank account (€10,000 if the account is held in a State or territory that has not concluded an administrative assistance agreement with France) and €750 per undeclared crypto-asset account; back taxes over 10 years, late-payment interest and a surcharge of up to 80% (French General Tax Code (CGI), art. 1736 IV, art. 1729-0 A).
• Tax audit: the tax authorities use in particular the information received through automatic exchange (CRS/DAC2) to select the files to be audited.
• Tax lawyer: negotiation of penalties, defense strategy, complete confidentiality (professional secrecy) and post-audit support.

Introductory summary

Holding an account abroad is perfectly legal; it must in principle be reported every year.

With the automatic exchange of banking information (CRS) and the European DAC2 directive, the French tax authorities receive information each year on the accounts held abroad by French residents, which enables them to identify undeclared accounts. An omission may lead to a fixed penalty, additional tax over a period of up to ten years and, in principle, an 80% surcharge on the tax relating to the account.

A tax lawyer anticipates the requests of the tax authorities (in particular the national department for tax audits of individuals – Direction nationale de vérification des situations fiscales, DNVSF), secures your communications, negotiates penalties and, if necessary, argues your case before the administrative and criminal courts.

Should you wait for the regularisation scheme announced for 2027 or regularise before? The factors to weigh, with worked examples, are set out in the article should you wait for 2027 to regularise a foreign account?

What are the reporting obligations for an account held abroad?

• Who is concerned? Any person whose tax domicile is in France (for example an impatriate or a former expatriate who has come back to live in France), for their own accounts and those of the members of their tax household, as well as non-trading companies established in France (a real estate SCI, for example).
• Accounts covered: ordinary or multi-currency current accounts, savings accounts, securities accounts, life insurance or capitalisation policies taken out abroad, digital asset accounts opened with foreign platforms (Binance, Kraken) and neobanks (Revolut, Wise). Online payment accounts (PayPal, for example) are in principle concerned, with an exception for certain accounts used for online purchases or sales, linked to an account opened in France and receiving no more than €10,000 a year.
• Form: no. 3916-3916-bis, to be completed online in your personal tax account; in principle one form per account.
• Information requested: in particular the name and address of the institution, the account number, its type, its opening or closing dates, its use (personal, professional or mixed) and, where applicable, the power of attorney held.
• Deadline: the same as for the online income tax return (between the end of May and early June depending on your département);
• Limitation period: in principle 10 years instead of 3 (article L169 of the LPF) if the account was not reported, except in particular where the total credit balances of the accounts concerned did not exceed €50,000 at any time during the year. The additional tax then bears late-payment interest and, in principle, the 80% surcharge, even in the absence of established fraud.

What are the risks and penalties for failing to report?

How does a tax audit of your foreign accounts proceed?

1. Detection: the tax authorities may compare the information received from abroad (CRS/DAC2) with income tax returns, using in particular data analysis tools (data mining), in order to identify discrepancies; they may then send a request for information or open an audit.
2. Request for information: the auditor opens an in-depth examination of personal tax situation (Examen de Situation Fiscale Personnelle – ESFP) or a desk audit, attaching a detailed questionnaire on the nature of the assets and flows. Failure to respond within 60 days, and then within 30 days of a formal notice, may lead to an automatic assessment (LPF, articles L23 C and L71).
3. Kick-off meeting / telephone interview: a scoping meeting specifies the period covered, the option of submitting documents electronically and the response deadlines. The lawyer can obtain an extension if the file is voluminous.
4. Analysis of bank statements: the auditor may examine the statements and match the credits with the origin of the funds (salaries, dividends, share disposals, crypto-assets). Poorly documented transfers, including family transfers, may be treated as taxable income.
5. Proposed reassessment: a registered letter details the proposed adjustments and the penalties. Failure to reply within the time limit in principle amounts to tacit acceptance of the reassessments.
6. Taxpayer’s reply: the time limit for replying is in principle 30 days, which may be extended by 30 days on request, to submit reasoned and quantified observations with the relevant documents. The lawyer can structure the reply point by point, which may make it possible to discuss both the adjustments and the penalties.
7. Adversarial discussion: written exchanges or a meeting with the audit department. Depending on the nature of the disagreement, referral to a commission (for example the departmental tax commission) may be possible.
8. Collection: the sums due are then put into collection (tax notice or notice of assessment, depending on the tax). Depending on the case, payment deadlines may be requested, possibly against guarantees.
9. Remedies: tax claim to the tax authorities, then, where appropriate, administrative court, administrative court of appeal and Conseil d’État for income tax. Criminal proceedings for tax fraud fall within the jurisdiction of the criminal court (tribunal correctionnel).

How do you prepare for a tax audit?

• Consulting a lawyer from the outset: they can check that the procedure is lawful, request extensions, oversee written exchanges and put forward the relevant arguments in an attempt to limit penalties.
• Supporting documents: account opening agreements, full statements, dividend certificates, foreign tax residence certificates, digital asset transaction histories. A chronological filing system, with numbered documents, may make the auditor’s review easier.
• Comparison with the returns filed: comparing the income from the accounts with the amounts declared (returns 2042 and 2042-C) may bring any discrepancies to light; if some appear, whether an amended return for previous years is appropriate should be assessed with your lawyer.
• Estimating what is at stake: quantifying the possible additional tax over the period concerned (up to 10 years in some cases), late-payment interest (0.20% per month) and any surcharge (40% or 80%) may help anticipate a payment difficulty.
• Traceability of flows: a table summarising each credit and debit (date, currency, amount, euro equivalent, origin, supporting document) may limit extrapolations by the tax authorities.
• Questions the tax authorities often ask: disguised gift, contribution from a foreign company, gains on crypto-assets without supporting documents, etc. Preparing answers and supporting evidence for each of them with your lawyer may be useful.
• Legal monitoring: your lawyer follows developments in the administrative guidelines (BOFiP) and in the case law relevant to your file.

What I see in my cases

When an audit concerns accounts abroad, it is no coincidence: the tax authorities have received information, generally on significant amounts, and they intend to make maximum use of it. Without a solid file, the additional tax can be very heavy; in some cases it can reach 60% of the assets concerned, which is considerable.

In these cases, time matters, especially as the documents are abroad. The file to be put together is substantial, but it can be built intelligently: many options exist and, depending on how the same situation is presented, the reassessments can vary enormously. In my experience to date, a rigorous presentation and negotiation can, depending on the case, weigh significantly on the outcome, on the tax as well as on the penalties. This is only my experience: every case depends on its facts, and no result can be guaranteed.

I have handled many cases with the PCRP (pôles de contrôle des revenus et du patrimoine), the departments that audit individuals, all over France. I know the information they generally have, their objective and the way they work. In practice, a solid, precise file grounded in the legal texts shows the tax authorities from the outset that the discussion will be technical: this weighs on the rest of the procedure. As every audit is different, a case-by-case analysis is essential.

The reverse is also true: a poorly presented file can steer the tax authorities towards avenues unfavourable to the taxpayer, and some choices made too quickly are then hard to undo. The role of the tax authorities is to audit and, where appropriate, to reassess: hence the attention I pay to every detail of the file, every document and every word, before anything is sent.

The question the tax authorities ask most often concerns the origin of the funds, and it is gifts that are the hardest to justify. The first things I check are the limitation period, which is often useful, and the regularity of the procedure: I have fairly regularly had reassessments annulled on one or other of these grounds.

Taxpayers who have tried to regularise on their own also come to see me. Their mistakes are similar: they go into far too much detail, unintentionally draw attention to other subjects, and give answers that miss the question asked or go beyond it. The tax authorities then pull on the thread, as if unwinding a ball of wool, with new questions and new requests for documents; the resulting reassessments are often substantial.

As audit teams do not have unlimited resources, they quite logically concentrate their efforts on the least well-defended cases: from what I observe, only around one case in ten has a truly solid defence. As a general rule, an audit of foreign accounts takes six to twelve months.

Why use a tax lawyer?

• Experience: more than 250 foreign account cases and more than 300 tax audits handled.
• Penalties: request for remission or reduction of penalties and interest to the tax authorities (article L247 of the LPF), which assess it case by case.
• Criminal defense: assistance in the event of prosecution for tax fraud, before the criminal court or in the context of a plea-bargaining procedure (comparution sur reconnaissance préalable de culpabilité – CRPC).
• Confidentiality: all your communications and the documents entrusted to your lawyer are covered by professional secrecy.
• Post-audit support: follow-up of the settlement plan, requests for discretionary remission, formal tax claims and monitoring of case law relevant to your situation.

FAQ

Glossary

Foreign account: An account opened outside France, even if it is inactive.

NPR: Notification de proposition de rectification (proposed tax reassessment notice).

Surcharge (majoration): Penalty applied to back taxes (10% – 80%).

Article 1649 A: Requires accounts held outside France to be reported.

Checklist to tick before clicking "Send"
□ Form 3916-3916-bis completed 

□ Information for each account checked 

□ Digital asset accounts included 

□ Supporting documents scanned

Further reading

• Article 1649 A of the CGI: obligation to report accounts opened, held, used or closed abroad.
• Article 1736 IV of the CGI: penalties applicable for failure to report an account abroad.
• Article L169 of the LPF: the tax authorities' reassessment period extended to 10 years for undeclared accounts.
• OECD Common Reporting Standard (CRS) and European DAC2 directive: automatic exchange of information on financial accounts between tax authorities.