French Tax Bill of €15 Billion
Tuesday 04 August 2009
The French tax authorities identified a massive €15 billion in unpaid taxes last year, but this startling figure hides a slightly more complicated reality.
Most of the unpaid taxes were found within the business sector, where the tax inspectors undertake most of their investigations.
Thus, of the €15 billion in unpaid taxes and fines last year, around €6 billion came from underpaid VAT. Approximately €4 billion was identified in unpaid stamp duty, with the remainder relating to company tax and local taxes. Less than €2 billion concerned income tax.
Tax enquiries against individuals generally take the form of a written request for verification of supporting documentation, in a process called contrôle sur pièces.
Rarely do tax inspectors call on individual households as part of a tax enquiry, and it is equally unusual for individual taxpayers to be summoned to the tax office to explain their circumstances.
Of around 50,000 visits to premises that are carried out each year by the inspectors, only around 4,000 concern private individuals, equivalent to around 0.01% of taxpayers.
However, do let not that figure disguise the priority the French government give to tackling tax evasion. The Budget Minister Eric Woerth often speaks about it with a zeal bordering on religious fervour.
One of the major recent steps has been improved collaboration between the various tax and social security agencies, and specialist teams have been established in the Ministry of Finance.
Individual taxpayers who earn over €220,000 a year, or with gross wealth in excess of €3 million, are now subject to an automatic tax enquiry every three years.
Of the €15 billion in underpaid taxes in 2008, around €10 billion was identified from actual visits to business premises, with the remainder found by an examination of documentation.
Not all of the €15 billion was actually underpaid tax, as the total figure includes around €2.4 billion in penalties.
If the authorities consider there has been deliberate evasion and an unwillingness to cooperate with their enquiries the level of these penalties can amount to 100% of the underpaid tax.
It may also result in a legal action for fraud, and 992 such prosecutions were brought last year.
The message is, therefore, a clear one: if you are asked to supply further information on your income, a timely and open approach is likely to result in lower penalties, if any.
The key test the inspector will make is whether you acted in good faith; if they judge you did so, then matters are normally settled quite amicably.
Collection Remains a Problem
It is one thing for the tax authority to identify underpaid taxes, but it is quite another for them to recover the money. Each year they write off around 50% of amounts due simply because of collection difficulties.
By the time the authorities get around to commencing legal proceedings for recovery, those with arrears have either made themselves very scarce, or they have become insolvent!
Achieving the policy objective is being made more difficult by the fact that, whatever the improvements in coordination and specialisation that are being made, large cutbacks are being implemented in the size of the French civil service, so that routine tax administration is being hampered.
As a result, the greater risk is not that you will be subject to a tax enquiry, but that your tax assessment may be carried out incorrectly. Check your tax assessment with care!
You can read more in our guide to Tax Inspections in France.
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