The French government has declared war on tax and social security fraud, with an array of new anti-fraud measures introduced in the past year.

With the public sector deficit at a record high, the French government needs desperately to stem the hemorrhaging of public finances. Tax and social security fraud are estimated to be costing the taxpayer up to €40 billion a year in lost revenues.

In the absence of any real ability to increase taxes, or make swingeing cuts in public expenditure, the French government have given top priority to la chasse aux fraudeurs.

Earlier this year they established a national co-ordinating committee, the Délégation nationale de lutte contre la fraude, chaired by no less a person than the French Prime Minister.

Since the committee was established, new inter-agency agreements and organisational structures have also been set to help with the task, and new dedicated teams of investigators have been created. The national committee has also spawned similar derivatives within the each local préfecture.

One of the weaknesses of the whole tax and social security system in France is that it is so complex, and there are so many agencies involved in the process of administration, that tax and social security dodgers are able to weave between them undetected.

New and increased fines have been introduced for fraud, notably for undeclared work and abuse of the French health system.

The French government estimates that lost tax revenue from undeclared work amounts up to €12 billion a year, a figure equivalent to the total deficit of the French social security system.

Employers who engage someone without declaring them to the authorities will now be subject to a fine of up to €8,000. Particular targets for investigation are building firms, hotels, restaurants and farmers.

The Minister of Budget, Eric Woerth, created something of media splash earlier this summer when he participated in raids on 46 building sites around Bordeaux, accompanied by dozens of officials from the various regulatory agencies. Whilst the event may have been quite a drama, the return on the investment was probably lower than anticipated - a number of minor irregularities, one building firm not registered with the authorities, and five Polish workers who were undeclared.

New health fines have also been introduced, in large a measure to combat the trafficking in health cards that takes place. It is estimated that there are millions more cartes vitale in circulation than the actual number of households registered with the French healthcare system!

According to the government, there were around 180,000 frauds in the French healthcare system last year, of which only 200 were subject to some form of penalty.

Patients will now be liable to a fine of up to €5,500 for health fraud, whilst the figure is double for a doctor prescribing medicines or providing treatment without proper justification. Scandals involving medical professionals abusing the system, alone or in tandem with patients, is a quite frequent occurence in France, often relating to trafficking of medicines.

France/UK Government Tax Agreement

The new agreement presages a greater exchange of information, and the simultaneous joint investigation of a case. The targets of their activity will be primarily around VAT and income tax fraud.

The agreement forms part of a group of wider measures that have been agreed between EU States to combat fiscal and social security fraud.

France is pressing its EU partners for the creation of a European wide anti-fraud body, an item it has placed on the agenda of the European Council of Ministers as part of its current Presidency of the European Union.

You can read more about tax controls and inspections in our Guide to Taxes in France.