Tax fraud in France ❘ Paris & Marseille Law Firm

I. The definition of tax fraud under French law

According to article 1741 of the General Tax Code (CGI), a tax fraud is committed by "anyone who has fraudulently evaded or attempted to fraudulently evade the assessment or payment of all or part of the taxes referred to in the present codification, either by wilfully failing to make his declaration within the prescribed time limits, or by wilfully concealing a portion of the sums subject to tax, or by organizing his insolvency or obstructing the collection of the tax by other maneuvers, or by acting in any other fraudulent manner." 

As can be seen, this offence requires the combination of material (A) and intentional (B) elements.

A. The material element of tax fraud 

Tax fraud is characterized either by the evasion of tax assessment or by the evasion of tax payment. It should be noted that attempted tax evasion is also punishable.

As we will see below, this evasion can only be incriminated if it takes one of the following four forms.

1. Voluntary failure to file a tax return within the prescribed time limit

The voluntary failure to file a tax return within the prescribed time limit is the first form of evasion incriminated by Article 1741 of the General Tax Code.

It corresponds to the case where the taxpayer does not file his tax returns.

2. Voluntary concealment of amounts subject to tax 

A second form of evasion retained by the legislator consists in the voluntary concealment of sums subject to tax.

This form of evasion may consist first of all in the concealment of revenue. It can also consist of an abusive overestimation of charges or expenses in the declarations, thus artificially reducing the tax base. 

Voluntary concealment may also correspond to the omission to declare elements or information taken into account for the application of particular tax regimes. 

It should be noted that there is, however, a legal tolerance for the voluntary concealment of taxable amounts. The incrimination of tax fraud is only applicable if the concealment exceeds one tenth of the taxable sum or 153 €. 

3. The organization of one's insolvency

A third form of evasion retained by article 1741 is the organization of one's insolvency. 

It supposes that the taxpayer has, by a series of measures, withdrawn or attempted to withdraw his assets from tax collection proceedings. 

Thus, it has been judged that the president of an association, a former tax inspector, was guilty of the offence of tax fraud by transferring all of the association's assets to another association, whose real estate assets were in turn transferred to a foundation in Liechtenstein in order to thwart the tax authorities' paulian action (Crim. 5 June 2002, n° 00-87.901). 

Another example of organizing one's insolvency consists of a taxpayer permanently maintaining a bank overdraft to avoid any seizure, even though he has a relatively large income (Crim. 20 April 2005, n° 04-85.684). 

In these cases, the initiation of criminal proceedings does not prevent the exercise of a civil action (action in simulation, action paulienne, etc.) aimed at making recovery proceedings possible.

4. Obstruction of tax collection and other fraudulent actions

The fourth and final form of evasion is obstruction of tax collection and other forms of fraudulent actions. This refers to any procedure aimed at intentionally evading the assessment and payment of taxes (Crim. 22 Sept. 2010, n° 10-82.148). 

B. The intentional element of tax fraud 

Generally speaking, there is no crime without the intention to commit it. 

In the case of tax fraud, the intention to evade or attempt to evade can be deduced from the fact that the defendant has refrained from regularizing his situation even though he has been given formal notice to do so. In this respect, it should be noted that the tax authorities regularly give formal notice to the taxpayer to regularize his situation before reporting his behavior to the public prosecutor. 

Thus, by way of illustration, it was held that the failure of a taxpayer with significant income, despite formal notices, to file an income tax return on the grounds that he would not be taxable in France pursuant to the Franco-Israeli treaty, even though he had his actual residence and place of business in France, constituted tax fraud (Crim. 18 Sept. 1997, n° 96-85.155).

In addition, the intent to defraud can also be deduced from the knowledge and expertise of the offender, in particular when the omissions in the tax returns are made by a notary, a professional who is a priori aware of his tax obligations (Crim. 10 Jan. 1994, n° 93-80.599). 

Finally, it should be noted that the Court of Appeal of Aix-en-Provence considered that the intentional nature of the fraud could also be deduced from the existence of previous audits followed by tax adjustments (CAA Aix-en-Provence, Jan. 31, 2012, n° 2012/61).

Concerning the burden of proof, article L. 227 of the Tax Procedures Book (LPF) recalls that in case of criminal prosecution for tax fraud, it is up to the public prosecutor and the administration to prove the intentional nature of the offence.

II. Penalties applicable in case of conviction

Except for aggravating circumstances, tax fraud is punishable by 5 years of imprisonment and a fine of €500,000, which can be increased to twice the amount of the proceeds of the fraud.

However, the penalties can be increased to 7 years imprisonment and a fine of €3,000,000, which can be doubled to the amount of the proceeds of the offence, when :

• the facts have been committed in an organized gang;

• the facts were carried out or facilitated by means of :

1. accounts opened or contracts taken out with organizations established abroad;

2. the interposition of natural or legal persons or any comparable organization, trust or institution established abroad;

3. the use of a false identity, false documents or any other falsification;

4. a fictitious or artificial tax domicile abroad;

5. a fictitious or artificial act or the interposition of a fictitious or artificial entity.

When one of the above-mentioned aggravations is retained, the pronouncement of additional penalties of prohibition of civic, civil and family rights, mentioned in article 131-26 of the Criminal Code, is mandatory, except in the case of a specially motivated decision taken by the judges in consideration of the circumstances of the offence and the personality of its perpetrator.

Name and shame is also mandatory since, unless a specially motivated decision is taken, the court orders the posting of the pronounced decision and its dissemination at the expense of the convicted person.

Finally, it should be noted that complicity in tax fraud is punishable as the main offence of tax fraud (CGI, art. 1742).

III. The statute of limitations for tax fraud

The statute of limitations differs according to whether the reporting of the facts to the public prosecutor's office by the administration requires the assent of the Commission des infractions fiscales or not.

In principle, when a prior complaint by the administration is required for the exercise of public action, the provisions of article L. 230, first paragraph, of the Book of Tax Procedures provide that the administration has until the end of the sixth year following the year of the offence to file a complaint.

It should also be added that the statute of limitations is suspended for a maximum period of six months between the date of referral to the Commission des infractions fiscales and the date on which the Commission issues its opinion (LPF, art. L. 230, para. 3).

As an exception, when the denunciation of tax fraud facts is automatic, which is the case for certain frauds since law n° 2018-898 of October 23, 2018, the public action is prescribed by 6 completed years from the day the offence was committed (C. proc. pén., art. 8). 

Consequently, when a prior complaint from the administration is required for the exercise of the public action, the prescription period is longer than the common law period. 

The starting point of the limitation period is set differently according to the type of fraud.

Thus, when the fraud consists of a concealment, the limitation period begins to run at the time of the filing of the false declaration, without it being necessary to mention the date on which the falsification of accounting documents or the maneuvers to justify the accuracy of the declaration were carried out (Crim. 3 Nov. 1976, n° 76-90.581).

For example, in the case of a sale concealing a donation, the offence is committed at the time of presentation of the deed for registration and not at the time of drawing up the authentic deed (Crim. 19 March 1979, n° 78-92.575).

On the other hand, in the case of fraud by voluntary omission of declarations, the starting point of the prescription period is the date of expiration of the legal time limit for filing the declaration (Crim. 13 Dec. 1982, n° 80-95.151 ; Crim. 20 Feb. 1989, n° 87-90.806). 

However, if a declaration is filed after the deadline, the starting point of the prescription period is the date of filing (Crim. 27 Nov. 2002, n° 02-80.910).

Finally, it should be noted that even if the offence of tax fraud is statute-barred, there is reason to wonder whether other "consequential" offences are not likely to be prosecuted. This is the case for the offences of money laundering and concealment of tax fraud, which are continuous offences that continue over time, and which can thus be characterized even though the offence of tax fraud is time-barred.

Caroline Martin-Forissier, taw lawyer at the Paris bar

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