While taxpayers in the process of regularising their tax affairs may have been pleased to see the proportional fine censured by the Constitution, the government is raising the increases applicable to regularisation requests submitted from 14 September 2016.
As a reminder, individual taxpayers holding assets abroad that they have not declared to the tax authorities may spontaneously rectify their past tax situation with the Service de Traitement des Déclarations Rectificatives (STDR) under the conditions set out in the ministerial circular of 21 June 2013, supplemented by the ministerial circulars of 12 December 2013 and 10 December 2014.
These provide for mitigated penalties that differ according to whether the taxpayer is an "active" or a "passive" taxpayer. Only taxpayers whose assets derive from an inheritance or gift, or were accumulated when they were not resident in France for tax purposes, are considered to be "passive" taxpayers, subject in both cases to the foreign account not having been funded.
On the one hand, the increase of 40% for wilful misconduct[1] and the 40% surcharge for failure to file a return by the prescribed deadline[2] - concerning the wealth tax due from 2014 onwards[3] - are reduced to 30% for "active" taxpayers and 15% for "passive" taxpayers.
On the other hand, fines for failure to declare accounts[4] and life insurance policies[5]opened and subscribed abroad, amounting to 5 % per year[6],[7] of the value of each of the accounts and contracts where their total value is greater than or equal to €50,000 at 31 December of the year concerned, are reduced to 3% for "active" taxpayers and to 1.5% for "passive" taxpayers. For assets placed in trusts, the proportional rate of the fine is increased from 12.5%[8] 7.5% for "active" taxpayers and 3.75% for "passive" taxpayers.
However, in its decision n°2016-554 QPC of 22 July 2016, the Constitutional Council declared the second paragraph of 2 of IV of Article 1736 of the CGI, relating to the fine of 5% for failure to declare accounts opened abroad, to be unconstitutional. The Conseil Constitutionnel took up the plea of its own motion and, after pointing out that this fine was incurred even if the sums in the accounts had not been fraudulently evaded tax, held that "... the taxpayer is not liable for the fine if the sums in the accounts have not been fraudulently evaded tax". en providing for a proportional fine for a simple failure to comply with a reporting obligation, the legislator has introduced a penalty that is manifestly disproportionate to the seriousness of the offences it was intended to punish. ".
The tax authorities drew the consequences of this decision (i) by indicating that the proportional fine was no longer applicable to cases filed since 22 July 2016 and to those which, while being processed by the STDR, have not yet led to the signing of a transaction and (ii) by replacing it with the fixed fine codified in the first paragraph of IV, 2 of Article 1736 of the CGI (€1,500 or €10,000 per year and per account, depending on the location of the assets).
However, in the National Anti-Fraud Committee's press pack published on 14 September 2016, noting that " the conditions under which taxpayers holding undeclared assets abroad can bring themselves into line with the law are unbalanced by the effects of the Constitutional Council's decision "Bercy decided to increase the surcharges. These are now increased from 15% to 25% for "passive" taxpayers and from 30% to 35% for "active" taxpayers.
This announcement applies to " applications for regularisation submitted". from 14 September 2016. This means that files that have already been submitted to the STDR but for which no transaction has yet been signed should not be affected. However, the question remains as to whether these changes will apply to taxpayers who notified the STDR in writing of their intention to regularise their situation prior to 14 September 2016 but whose files were submitted after that date.
A priori, this increase should not affect life insurance policies and assets placed in trusts, for which the proportional fines remain applicable for the time being, in the absence of a declaration of unconstitutionality. However, two appeals on grounds of ultra vires have been lodged against these fines, together with a request to refer the case to the Court of Cassation.
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[1] Art.1729 of the CGI
[2] Art.1728 of the CGI
[3] Prior to 2014, first-time ISF filers benefited from the 10% rate.
[4] Art.1736 IV. 2 para. 2 of the CGI (General Tax Code)
[5] Art.1766 of the CGI
[6] From 2011 income tax.
[7] The fine may not be less than €1,500 or €10,000 where the offence relates to failure to declare a bank account or life insurance policy held or taken out in a State or territory that has not signed an administrative assistance agreement with France to combat tax fraud and tax evasion, allowing access to banking information.
[8] Art. 1736 IV bis of the CGI
