1) General obligations and scope of the “declaration of accounts held abroad”

• Persons domiciled in France must declare accounts “opened, held, used or closed” abroad; the obligation covers not only account holders but also those who have used the account (even under a power of attorney) during the year covered by the return (French General Tax Code (Code général des impôts, CGI), Article 1649 A, para. 2).
• The Conseil d’État has held that a taxpayer must declare an account opened abroad that he has “used”, even if he is not the account holder, since mere use is sufficient to trigger the obligation (CE, 30 Dec. 2009, No. 299131, Lisiak).

2) What a “request for regularisation” from the tax authorities entails

• The tax authorities (administration fiscale) may request “any information or justification concerning the origin and the terms of acquisition of the assets” held in undeclared accounts (French Tax Procedure Code (Livre des procédures fiscales, LPF), Article L. 23 C), which means producing statements, proof of origin (inheritance, gift, savings, etc.) and detailed explanations of the flows.
• In practice, when the tax office initiates this procedure, it expects conclusive evidence of the origin of the funds and their trajectory, failing which the reassessments and penalties specific to undeclared accounts may be applied.

3) Tax and criminal risks incurred

• Fixed fine per undeclared account: €1,500 per account, or €10,000 if the account is located in a State/Territory that has not concluded with France an administrative assistance agreement allowing access to banking information.
• The former proportional fine of 5% of the credit balance (for accounts totalling €50,000) was declared unconstitutional (Conseil constitutionnel, decision No. 2016-554 QPC of 22 July 2016) and is no longer applicable
• 80% surcharge on the additional tax relating to sums held in an undeclared account, in the case of adjustments based on Article 1649 A; this surcharge replaces the €1,500 or €10,000 fine
• No cumulation: the 80% surcharge excludes the application, for the same tax, of the surcharges under Articles 1728, 1729 and 1758 of the CGI
• The presumption of taxable income may apply to sums transferred via undeclared accounts, the corresponding additional tax being subject to a 40% surcharge, in addition to the impossibility of offsetting deficits and tax reductions against reassessments subject to the 40%/80% surcharges
• Criminal: failure to declare may constitute “aggravated tax fraud”, punishable by 7 years’ imprisonment and a €3 million fine; the criminal risk is separate from the tax penalties.

4) How to respond in practice to the tax authorities’ request

• Reply within the time limits: provide without delay the information and supporting documents required on the origin and terms of acquisition of the assets (complete statements, inheritance/gift deeds, proof that no further funds were paid in, bank correspondence, etc.), in line with the requirements of Article L. 23 C of the LPF.
• Provide detailed explanations: a detailed written statement on the origin of the assets and the chronology of the flows, accompanied by conclusive evidence, is decisive for the tax office’s assessment of the situation.
• Anticipate sensitive points: use of the account (even limited, including under a power of attorney) triggers the reporting obligation and the associated penalties; where applicable, prepare evidence that the account was not used.
• Check the scope of the penalties: the 80% surcharge does not apply to tax resulting from Article 755 of the CGI (taxation at 60% where the origin of the assets is not substantiated), if this procedure is implemented

5) Regularising: today, under ordinary law (a change from the former scheme)

• New applicable rule: since 1 January 2018, there has no longer been any special procedure such as the one run by the unit handling amended returns (Service de Traitement des Déclarations Rectificatives, “STDR”) with a reduced scale of penalties; amended returns are processed under ordinary law, in principle without any “preferential” reduction based solely on voluntary disclosure after 2017
• Practical scope today: if you regularise now, put together a complete file (amended returns for the period not yet time-barred, and supporting documents), but without expecting a settlement scale specific to undeclared foreign assets, as that regime was closed at the end of 2017. If the file submitted is truthful and properly prepared, there are nevertheless possibilities of reaching a settlement (transaction, i.e. negotiation) with the tax authorities to reduce the penalties.

6) Contents of the regularisation file

• a precise and detailed account of the origin of the assets, with supporting documents for the amounts and associated income, bank certificates in the event of inheritance/gift (in particular confirming that no further funds were paid in subsequently), and a statement certifying that the file is truthful and complete.
• The evidential approach remains relevant under ordinary law: it makes it possible to respond effectively to requests for information under Article L. 23 C of the LPF and to limit the risk of reassessments and specific penalties.

7) Summary table of the main penalties applicable to undeclared accounts

8) Immediate practical advice

• Draw up an exhaustive inventory of the accounts concerned (holders, joint holders, holders of powers of attorney, opening/closing periods, transactions) and check, year by year, the elements of “use” that trigger the reporting obligation.
• Put together a complete evidential file on the origin and trajectory of the funds (statements, deeds, bank certificates…)
• Assess the risk of the 80% surcharge (1729‑0 A) and, where applicable, its substitution for the fixed fine, as well as the scenarios involving a presumption of income with a 40% surcharge (1758) and criminal exposure (1741).

In summary, reply within the time limits (in principle two months), with documented and reasoned responses, to requests based on Article L. 23 C of the LPF (origin of funds), structure a complete and well-evidenced regularisation under ordinary law, and gauge the risk by taking into account the fine under Article 1736, the 80% surcharge under Article 1729‑0 A, the presumption/40% surcharge under Article 1758 and, where applicable, criminal exposure under Article 1741.

Assess your chances of reaching a settlement (transaction, an amicable negotiation with the tax authorities) in order to reduce fines and penalties.

Estimated reading time: 7 minutes

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