In a press release published on its website September 4, 2015, the European Commission called the attention of Member States on the growing gap found in the collection of VAT within the EU. The VAT gap is defined as “the overall difference between the expected VAT revenue and the amount actually collected”.
From the 2013’s figures, a study mentioned in that communiqué reported a VAT loss estimated at €168 billion throughout the European Union. In this specific context, the Commission reminded Member States of the need to adopt at national level a “tougher stance against evasion” and ensure the enforcement of more stringent tax rules.
In France, tax laws adopted these recent years tend to increase the power of the tax administration to flush out tax fraud and tighten the noose around offenders’ neck. The executive summary on French tax penalties outlined below is intended primarily for the information of foreign companies carrying out taxable activities in France.
1. How can the French authorities be informed of my activities in France?
If you are a foreign company and you conduct an undeclared business in France for which you are liable for VAT (or other tax reporting requirements), the French tax department has a set of technical and regulatory means allowing it to identify you.
First of all, it uses a powerful system of data analysis designed to cross-check flows of goods and services, including cross-border transactions involving the customs administration. This tool is coupled with the automatic exchange of information between EU Member States through the European anti-fraud network created in 2011 (under the impulse of the French government) and called Eurofisc.
Secondly, the tax office may also exercise its right of communication by requesting from your business partners in France (suppliers, customers, logistics companies and so on) to disclose any commercial documents (invoices, accounting documents, commercial records) enabling it to perform a normal tax investigation on your company. Since 2015, any refusal to provide such information is punished by a fine of €5,000 per request.
Thirdly, the French Minister of Finance recently revealed in the newspaper Le Parisien the intention to pay whistleblowers (also known as “snitches” or – in dutch speaking countries – “klokkenluider”). The principle would be to reward any person who possesses privileged information that would allow tax officials to recover uncollected VAT from a business involved in tax evasion.
2. What is the financial risk for not complying with the French VAT law?
We resume in the following table various tax penalties, surcharges, fines and default interests incurred when violating the French law on Value Added Tax. For simplicity’s sake, we will also include penalties related statistical returns.
|Tax obligations||Failure||Delay||Mistakes||Legal references|
|Registering for VAT||Estimation of tax(1) over the 10 past years + 80% surcharge + default interest.||Standard penalties for late filing.(2)||n/a.||Art. 66 – 3° of BTP and Art. 1728 – 1 of the FGTC|
|Filing VAT returns||10% surcharge(3) or a fine of €150(4) per return when there is no VAT due.||10% surcharge or a fine of €150 per return when there is no VAT due.||Please refer to footnotes.(5)||Art. 1728 – 1 and Art. 1729 B – 1 of the FGTC|
|Online filing||Surcharge of 0.2%(6) with a minimum of €60.||n/a.||n/a.||Art. 1738 – 1 of the FGTC|
|Payment of VAT||5% surcharge and default interest(7) rated at 0.4% per month of delay.||5% surcharge and default interest rated at 0.4% per month of delay.||Any underpaid amount is subject to tax penalties.||Art. 1730 – 1 and Art. 1727 – III of the FGTC|
|Electronic payment||Surcharge of 0.2% with a minimum of €60.||n/a.||n/a.||Art. 1738 – 1 of the FGTC|
|INTRASTAT (Dispatch flows)||A fine of €750 per missing return. This amount is doubled if no action is taken within 30 days after the receipt of a formal notification.||A fine of €750 per late return. This amount is doubled if no action is taken within 30 days after the receipt of a formal notification.||A fine of €15 for each single error or omission, but the total cannot exceed €1500 per return.||Art. 1788 A – 1 of the FGTC and Art. 467 – 4 of the French Customs Code|
|INTRASTAT (Arrival flows)||A fine of €750 per missing return. This amount is doubled if no action is taken within 30 days after the receipt of a formal notification.||A fine of €750 per late return. This amount is doubled if no action is taken within 30 days after the receipt of a formal notification.||A fine of €15 for each single error or omission, but the total cannot exceed €1500 per return.||Art. 1788 A – 1 of the FGTC and Art. 467 – 4 of the French Customs Code|
|Invoicing customers||A fine representing 50% of the amount received, but reduced to 5% if the transaction was duly recorded in the accounting books.||n/a.||A fine of €15 for each single error or omission, but the total cannot exceed 25% of the invoice amount.||Art. 289, Art. 1737 – I – 3 and Art. 1737 – II of the FGTC|
|Charging french VAT||100% of any tax not charged or under-stated + 10% surcharge + default interest.||10% surcharge + 5% extra surcharge (if appropriate) + default interest.||n/a.||Conseil d’État n° 11798, 14/12/1979. Art. 1728 – 1 and Art. 1721 – III of the FGTC.|
|Applying reverse-charge mechanism (VAT)||Fine of 5% if the amount of VAT to be self-accounted is eligible for deduction. Otherwise, 100% of the amount of tax under-stated + standard surcharge (with a possible increase of the rate for deliberate inaccuracies) + default interest.||In case of a voluntary correction done before any action from the tax office, the fine of 5% is not applicable if the amount of VAT to be self-accounted is eligible for deduction.||n/a.||BOI-CF-INF-20-20-20150506, sections 90 to 100. Art. 1788 A – 4, Art. 1727 III, Art. 1729 A – 2, Art. 1729 and Art. 1728 – 1 of the FGTC.|
(1) The tax authorities assess by themselves the amount of turnover on which the VAT will be calculated.
(2) A late VAT registration occurring before any action from the tax administration will not give rise to penalties. However, the late filing of VAT returns and the late payment of tax due (as a result of this late registration) will fall under the scope of penalties outlined in the above table.
(3) The surcharge of 10% is applicable only when the correction is done voluntarily or occurs within 30 days after having received a formal notice (sent by registered letter) from the tax authorities. The rate is increased to 40% if the correction is not done within the period of 30 days. It reaches a maximum of 80% in the event of discovery of an underground economy (unreported activities).
(4) Where the taxpayer has filed a late return either spontaneously or within 30 days after having received a notification from the tax office, the fine of €150 shall not apply, provided that it is the first infringement committed during the year of filing and the 3 previous calendar years. – Art. 1729 B – 3 of FGTC –
(5) Mistakes found in a VAT return not resulting in the payment of tax (e.g. a return giving rise to a VAT repayment) are fined €15 for each omission or inaccuracy. The minimum penalty is set at €60 and the maximum is €10,000 per return (including its annexes). – Art. 1729 B – 2 of FGTC –
When it is a mistake whose correction (by filing an amended return) would involve an additional amount of VAT due (includes cases where an illegal “VAT credit” has been obtained), the penalty is: 100% of the VAT amount under-stated or over-claimed + 10% surcharge (Art. 1728-1 of the FGTC) + default interest. – Art. 1729 A – 2 of the FGTC –
The surcharge for errors is increased to 40% for deliberate inaccuracies and 80% in case of fraudulent intentions. – Art. 1729 of FGTC –
(6) If the VAT return to be filed electronically is “nil” or gives rise to a VAT credit in favour of the taxpayer, the fine applicable is €15 per return, with a minimum of €60 and a ceiling set at €150 (includes all documents to be filed simultaneously with the main return). – Art. 1738-1 of the FGTC –
(7) Please note that “default interest” is not intrinsically seen as a tax penalty. Its purpose is to compensate the loss suffered by the Public Treasury as a consequence of late payment of VAT. The amount of “default interest” can be calculated only from the date when the full amount of VAT due has been settled.
3. How far back can I be audited retroactively?
The period during which the French tax authorities can audit your company in order to recover undeclared tax is:
- Statute of limitations (normal): 3 years backward, plus the year before the 3 years period. In 2015 for example, we have to count backward from December 31, 2015 up to January 1, 2013. We have to add to this period the whole year 2012. Put differently, until December 31, 2015, the tax office can investigate on a transaction for which the tax point occurred during the year 2012. This initial period is extended by 2 years when the French tax office requests an international assistance from a foreign country (which is often the case when the company suspected is established out of France).
- Statute of limitations (special) : 10 years. It is the case for unreported activities (e.g. a foreign company is not registered for VAT purposes in France although liable for such a registration).
4. My company is abroad, do I really need to worry?
You need to keep your company compliant while doing business internationally. For your information, France has concluded with several foreign countries agreements on mutual assistance for tax recovery matters.
It means that the French tax authorities can request for assistance from their counterparts in a foreign nation in order to tackle a tax evasion taking place in France. This kind of request is likely to push the local authorities (in the foreign country) to audit the company accounts of their own residents.
Corintax® is an authorized fiscal representative well acquainted with French VAT legislation. If you are a business owner, a managing director or financial controller of a foreign company and, on a voluntary basis, you would like to be compliant with your VAT obligations in France, please send your message to: vat@N0SPAM.corintax.com