The definitive abolition of exchange controls now allows us to legally open or hold one or more bank accounts beyond our borders. In most cases, only three things are required to open an account abroad : an identity card, proof of address and bank details (RIB).

However, to be entirely lawful, holding a bank account abroad must be declared annually to the French tax authorities (administration fiscale). The introduction of such an obligation is one way for the tax authorities to combat tax evasion.

A deliberate failure to comply with this obligation has serious consequences for the offender.

Heavy penalties for deliberate failure to comply with the duty to declare a foreign bank account 

Where a tax audit reveals undeclared foreign bank accounts, the tax authorities have a right of reassessment (droit de reprise). This corresponds to the period during which the tax authorities may apply a penalty and claim payment of tax.

This period is in principle 3 years. By way of exception, this reassessment period may be extended to 10 years where the total credit balances of the accounts held abroad exceed 50,000 euros. This threshold is assessed throughout the year.

A taxpayer who has not declared his or her foreign accounts will have to pay a fixed fine of 1,500 euros per year and per undeclared account. This fine may be increased to 10,000 euros if the account in question is located in a country that has not concluded with France an administrative assistance agreement allowing access to banking information.

Example : It is 2019, and a taxpayer has had 3 undeclared accounts in Switzerland since 2010.

Account no. 1 : 5,000 euros

Account no. 2 : 20,000 euros

Account no. 3 : 10,000 euros

The total credit balances of these accounts are below 50,000 euros (=35,000 euros). The tax authorities can go back as far as 2016 to make income tax reassessments (3 years)

As regards the fixed fine, the reassessment period remains four years; the taxpayer will therefore have to pay 3 x 1,500 euros (since he has 3 accounts) = 4,500 euros ; over 4 years (reassessment periods)

4,500 x 4 = 18,000 euros

The taxpayer will then have to pay a fine of 18,000 euros.

In addition to this fixed tax fine, the tax adjustments relating to these foreign bank accounts will in principle be subject to an 80% surcharge and the taxpayer will have to pay late-payment interest at the rate of 2.40% per year (0.20% per month; 4.80% per year before 2018).

A deliberate failure to comply with the obligation to declare one’s foreign accounts to the French tax authorities may also lead to serious criminal penalties, since it may constitute the offence of tax fraud, punishable by a fine of up to 3 million euros and 7 years’ imprisonment.

More than 6 years after the offence, no criminal penalty may be applied.

With the relaxation of the ” Bercy lock ” (verrou de Bercy) (Law of 23 October 2018) and the tax authorities’ stepped-up fight against tax fraud, criminal penalties in this area are increasingly frequent.

While the tax authorities have more and more means to crack down on tax fraud, they also generally know how to show leniency towards taxpayers who take the spontaneous step of regularising the accounts they hold abroad.

The possible leniency of the tax authorities in the event of voluntary regularisation of a foreign bank account :

Voluntary regularisation (régularisation spontanée) covers several scenarios.

It can range from the taxpayer acting in good faith who was not previously aware of the applicable legislation and decides of his or her own accord to regularise his or her situation, to the taxpayer who has directly received a request for regularisation from the tax authorities. Our firm of tax lawyers has assisted with numerous procedures of this type and is able to prepare your regularisation file.

The tax authorities generally give the taxpayer a kind of ” last chance ” to regularise his or her situation and thus avoid penalties that could be even heavier, both for tax purposes and under criminal law.

The key point here, therefore, is to understand clearly that voluntary regularisation is a regularisation of foreign bank accounts outside any litigation proceedings with the tax authorities.

The French tax authorities have a powerful argument to encourage taxpayers to voluntarily regularise the bank accounts they hold abroad.

Indeed, since 2014 (Berlin agreement of 29 October 2014, with data collected since 2016), France has been a signatory to an agreement on the automatic exchange of banking information.

In practical terms, this means that as soon as a French tax resident holds an account with a foreign banking institution that is a signatory to this agreement, the French tax authorities will be automatically informed through the transfer of a set of information such as surname, first name, address, account number, tax identification number, account balance, etc.

Many countries are signatories to this agreement, as there are now more than 100 of them, including former ” tax havens “ such as Panama, Switzerland and Israel.

The existence of such exchanges of information between the signatory States therefore makes tax evasion very difficult.

The likelihood that the tax authorities will become aware of the existence of their taxpayers’ foreign accounts now appears to be relatively high. It therefore seems even more advisable than before to proceed with their voluntary regularisation as soon as possible.

Note, however, that voluntary regularisation does not mean the absence of penalties. They will merely be reduced.

The taxpayer will indeed still have to pay the fixed fine mentioned above (1,500 euros or 10,000 euros depending on the State in which the foreign accounts are located).

He or she will also still have to pay the tax adjustments relating to the income generated by his or her foreign accounts; however, the surcharge will in principle be 40% (instead of, in principle, 80%). Likewise, the late-payment interest will be reduced.

Furthermore, a voluntary regularisation does not guarantee the absence of criminal proceedings. However, both the tax authorities and the criminal authorities (the public prosecutor, procureur de la République) are most often fairly lenient towards a voluntary approach.

It should also be noted that this regularisation applies to the years that were not declared when they should have been. In order to comply with the tax rules in force, the taxpayer must therefore continue in the future to declare annually all the accounts he or she holds abroad.

Our firm of tax lawyers can assist you.