International tax cooperation has been considerably strengthened over the past few years. After Switzerland, many States, including Israel, now automatically send the French tax authorities information on financial accounts held by residents of France.
For a French tax resident who holds bank accounts, life insurance contracts or real estate in Israel without having declared them, the question of regularisation may therefore arise. This article presents the applicable French rules; it does not deal with Israeli taxation, on which a local professional may be consulted.
In brief
- Israel takes part in the automatic exchange of financial account information (CRS standard): the French tax authorities receive information on accounts held in Israel by residents of France.
- A French tax resident must in principle declare every year his or her accounts opened abroad and the income they generate.
- Where accounts have not been declared, the tax authorities may in principle go back ten years for income tax.
- Since 2018, regularisations have in principle been subject to the ordinary rules: there is no longer a reduced penalty scale.
- Whether and how to regularise is assessed case by case, with a lawyer.
Contents
The exchange of information between France and Israel
France and Israel are bound by a tax treaty containing an administrative assistance clause allowing information to be exchanged on request. Israel also takes part in the automatic exchange of financial account information (the OECD Common Reporting Standard, CRS): the French tax authorities thus receive information every year on accounts held in Israel by residents of France (identity of the holder, balance, income).
The term “assets” is broad. It mainly covers bank accounts (current accounts, savings accounts), securities accounts, life insurance contracts and real estate located in Israel. How this exchange works is detailed in the article on the automatic exchange of bank account information.
Reporting obligations in France
A French tax resident is in principle taxable in France on all his or her income, including Israeli-source income, subject to the rules laid down by the France–Israel tax treaty, which may, depending on the case, avoid double taxation; only an analysis of the situation by a lawyer can determine whether and how they apply. This resident must also, in principle, declare every year the accounts opened, held, used or closed abroad, as well as life insurance contracts taken out outside France (form 3916-3916-bis).
Real estate located in Israel is also in principle included in the assets subject to real estate wealth tax (IFI) where the net value of the household’s real estate assets exceeds €1.3 million.
How far back can the tax authorities go?
For income tax, the limitation period is in principle three years. It is, however, extended to ten years where bank accounts or life insurance contracts held abroad have not been declared, whatever the State concerned, unless the total of the credit balances did not exceed €50,000 during the year (article L169 of the Tax Procedure Code, LPF).
In the event of regularisation or an audit, the tax authorities may therefore in principle reassess the tax evaded over a period of up to ten years, together with late-payment interest and penalties that vary depending on the situation. For IFI, which replaced the wealth tax (ISF) in 2018 and only covers real estate, the limitation period may also, in certain cases, be extended to ten years. These rules are detailed on the page on tax audits of foreign accounts.
Penalties incurred
Depending on the case, failure to declare accounts held abroad may in particular lead to:
- a fine of €1,500 per undeclared account and per year (€10,000 for an account located in a State or territory that has not concluded with France an administrative assistance agreement allowing access to bank information);
- an 80% surcharge on the tax reassessed in respect of sums held in an undeclared account, which then replaces the per-account fine (article 1729-0 A of the French Tax Code, CGI);
- in certain cases, taxation of assets whose origin has not been justified at the 60% gift and inheritance tax rate (articles L23 C of the LPF and 755 of the CGI);
- in the most serious cases, criminal prosecution for aggravated tax fraud.
The origin of the funds (inheritance, gift, savings already taxed or undeclared professional income) is decisive in assessing the tax and penalties incurred: inherited assets, of which only the income was not declared, are in principle not treated in the same way as sums derived from an undeclared activity. The fines are detailed in the article on fines for failing to declare an account abroad.
Regularising: under what conditions?
Since the closure of the unit handling amended returns (STDR) on 31 December 2017, there has no longer been a reduced penalty scale specific to assets held abroad: regularisations are, as a general rule, subject to the ordinary rules. A voluntary regularisation, submitted before any audit procedure and accompanied by a complete and truthful file, may nevertheless, depending on the case, be a solution and open a discussion with the tax authorities on penalties. The procedure is presented in the article on tax compliance requests.
As the automatic exchange of information makes detection increasingly likely, it may be useful to examine the matter without waiting for a possible request from the tax authorities. As every situation is different, whether and how to regularise deserves to be analysed with a lawyer.
What I see in my cases
Israel is one of the countries that come up regularly in my foreign account cases. Whether the regularisation is voluntary or follows a request from the tax authorities, I do not see a great difference in treatment, even though the tax authorities may be slightly more lenient in the first case. The bank statements are generally obtained in the end, sometimes after several reminders. As regards the origin of the funds, it is gifts that are the hardest to justify.
FAQ
Are the French tax authorities informed of accounts held in Israel?
In principle yes: Israel takes part in the automatic exchange of financial account information (CRS standard), and the French tax authorities receive information every year on accounts held in Israel by residents of France.
Over how many years can an undeclared account be reassessed?
For income tax, the limitation period is in principle extended to ten years in the case of an undeclared account held abroad, unless the total of the credit balances did not exceed €50,000 during the year.
Is there still a specific regularisation scheme?
No: the STDR scheme closed at the end of 2017. Regularisations have since been subject to the ordinary rules, without a reduced penalty scale; a discussion with the tax authorities nevertheless remains possible depending on the case.
