Tax fraud: offenses and penalties

Verified 26 February 2024 - Directorate for Legal and Administrative Information (Prime Minister)

Tax fraud is defined as all the fraudulent processes making it possible toto evade tax voluntarily. The perpetrator of the fraud and his possible accomplices are subject to criminal and fiscal sanctions.

Tax fraud is the set of fraudulent processes to which the taxpayer use to deliberately evade the assessment and payment of tax.

The offense is therefore committed when 2 conditions the following shall be combined:

  • The carrying out of one or more fraudulent processes, for example, a misrepresentation or concealment of taxable sums (material element)
  • Intent to commit the crime, i.e. fraud (moral element)

The carrying out of fraudulent processes

The taxpayer shall evade tax through fraudulent processes. Tax evasion is also a crime the attempt, i.e. the fact of try to evade fraudulently.

In order to avoid tax, the taxpayer may resort to various fraudulent schemes such as filing outside the prescribed time limits, keeping fictitious accounting records, carrying on a hidden activity, false domicile abroad, etc.

Please note

It does not matter what tax the taxpayer wants to avoid. Most often, the taxes targeted by fraud are income tax (IR), business tax (SI) and the VAT: titleContent.

The intent to commit the offense

Fraud must be intentional. To be convicted, the taxpayer duty be conscious he escapes the payment of tax.

Conversely, fraud is not intentional if it results from simple negligence of the taxpayer (miscalculation, omission of the reporting deadline, belief in the non-taxable nature of the transaction, etc.).

In order to deduct the taxpayer's fraudulent intent, the tax administration generally relies on multiple items such as:

  • The profession, skills and/or duties of the manager: for example, the manager is supposed to be aware not only of his tax and accounting obligations but also of their status of application in the company. It is presumably by intentional action that he commits or allows the breaches to take place.
  • The financial scale of the fraud
  • Formal notice from the tax administration was unsuccessful
  • The repetitive or systematic nature of the non-compliance or the fact that it has already been the subject of a tax audit
  • The blatant nature of the failure to comply with the tax law: for example, the manager who has not drawn up any checks to the public treasury in order to pay VAT for several years.
  • The implausibility of the explanations of the controlled taxpayer
  • Accounting entries: for example, where there are significant differences between accounting and reporting to the tax authorities.

The offense of tax evasion may include many forms. The most common fraud cases are:

  • Voluntary failure to report within the prescribed time limits
  • The willful concealment of tax-liable amounts
  • The insolvency organization
  • The accounting offense

Since 1er january 2024, the offense of facilitating tax evasion is also prosecuted.

Voluntary failure to report within prescribed time limits

The reporting omission corresponds to failure to report within the time limits laid down to send the return to the tax authority.

It's about any tax return to be filed within a specified period, for example: the annual income tax (IR) return, the business tax (SI) income tax return or the monthly VAT return.

If the omission is intentional, it does not matter whether the statement is non-existent or only belated. The extent of the delay is immaterial and the late payment of all or part of the taxes evaded does not make the offense disappear.

Example :

The reporting omission can be illustrated by many situations :

  • False residence abroad : the taxpayer claims to be domiciled in another State where the tax is lower than in France or where no return is required. The taxpayer simulates a fictitious domiciliation (e.g. rental of premises in the chosen country, creation of a front business having its headquarters there, etc.) and at the same time conceals the anchorage in France (use of bank accounts opened in the name of others, occupation of premises allocated to another business, etc.).
  • Disguised activity : the taxpayer claims to be engaged in an activity (e.g. promoting tourism products for businesses in Africa) which is not taxable, whereas the taxpayer is in fact engaged in a travel agent activity which is subject to tax.
  • Occult activity : the taxpayer carries on a taxable activity in a concealed manner (absence of registration on the SCR: titleContent, cash payments, offshore bank accounts, etc.) to avoid tax returns.
  • Undue taxation : the taxpayer enters the simplified VAT system and fulfills the annual reporting obligation attached thereto, without making the monthly declarations resulting from the normal taxation system to which he is in fact subject by virtue of his activity.

Voluntary concealment of taxable amounts

Concealment is the failure to record taxable amounts in a tax return. Most often, concealment results in indication of an incorrect amount in the declaration. Concealment implies not a lack of declaration but a false or incomplete statement.

Example :

  • Taxpayer reports by reducing their amount, such as the amount of tax collected on the VAT return or the amount of profit on a business tax return.

To conceal undeclared sums, the taxpayer may resort to fraudulent maneuvers: hidden exercise of an activity, personal expenses recorded in the expenses of the business, cash receipts, opening of a secret bank account...

  • Taxpayer reports allowing it to unduly reduce the tax base, such as deductible expenses on an income tax return or expenses on an income tax return.

These notional or increased expenses are then entered in the accounts by means of false documents. For example, a business declaring the cost of work allegedly carried out by a subcontractor but actually carried out by its own employees to be covered.

Please note

Concealment may be constituted even if the amounts omitted from the tax return are entered in the accounts. The proper keeping of the books of account and making them available to tax officials do not prevent the offense from being committed.

There is a legal tolerance ” in the matter of concealment. The amount of undeclared amounts must exceed 1/10e the taxable amount, or €153 for the offense to be committed.

Insolvency organization

An insolvency organization is the completion of a set of measures tobe unable to pay their tax debt, due to insufficient assets.

Example :

The taxpayer puts out of reach the sums that the public treasury could have apprehended: by ensuring that its bank accounts are kept short to avoid seizure and by accumulating tax debts.

Accounting Offense

Accounting offenses consist of:

  • L'absence of a journal or equivalent documents (e.g. general ledger, payroll, purchase and sales vouchers, general meeting minutes, inventory).
  • The keeping of false or inaccurate records (e.g. recording false invoices in the accounts).

The tax administration may also institute proceedings where the accounting records are kept on media which do not allow it to carry out checks.

Example :

A catering establishment shall use computer software that does not allow the retention of basic computer data beyond 35 days. This software also allows to modify the data entered without any trace on the paper medium. In this case, the institution may be convicted on the basis of the accounting offense.

Provision of instruments to facilitate tax fraud

Since 1er january 2024, the tax administration can also prosecute anyone making available instruments to facilitate tax fraud.

Specifically, this offense is aimed at making available means enabling the company to evade tax fraudulently. These include:

  • The opening of accounts or the signing of contracts with organizations established abroad.
  • The interposition of natural or legal persons established abroad. Interposition consists in introducing, in the relationship between the fraudulent taxpayer and another person, an intermediary established abroad in order to unduly cause the incompetence of French tax law.
  • The use of false identity or documents or any other falsification. For example, using a false name and address to open a bank account to conceal funds. It may also involve relying on false invoices in order to certify the existence of fictitious expenses.
  • The justification of fictitious or artificial tax domiciliation abroad. The fraudster thus seeks to evade French tax law by unjustifiably claiming compliance with the tax law of another country (possibly a “tax haven”) in which it does not matter whether or not he complies with his obligations.
  • Performing any other maneuver intended to mislead the administration.

This offense is completely autonomous. It exists even in the absence of prosecution or conviction for tax evasion.

This new offense allows prosecution, without waiting for the company's conviction, all intermediaries offering tax evasion schemes (accountants, bankers, notaries, lawyers...).

The administration may institute proceedings against the author tax evasion and possible accomplices who would have helped (accountants, bankers, notaries...).

Perpetrator of tax fraud

In principle, it's the taxpayer, who is liable for the taxes from which he has evaded or attempted to evade fraudulently, and who is to be regarded as the perpetrator of the offense of tax evasion.

It is necessary to distinguish 2 situations, depending on whether the taxpayer is a sole trader (natural person) or business (legal person).

Sole trader

As head of company, the sole trader is supposed to be aware not only of his tax and accounting obligations but also of their status of application in the company. He is personally obliged to ensure compliance with the tax law.

As such, he can be prosecuted for acts committed by an employee. He is probably knowingly letting these breaches happen.

Example :

In the case of a false declaration, the Head of company is criminally liable even if he has not physically made and lodged the declaration. He cannot escape responsibility by hiding behind the fact that his accountant or his secretary is responsible for completing the tax returns.

On the other hand, the head of company is not criminally liable if he has consented to a delegation of powers to one of the company's employees (the delegate).

If the powers with respect to tax obligations have been delegated, it is no longer up to the head of company to ensure that they are fulfilled. In this case, only the delegate is responsible for the breaches of the tax law.

To be valid, the delegation of powers must relate to the tax obligations in question and be consented to a company employee with the competence (technical knowledge), the authority (ability to take decisions) and means (financial and disciplinary) necessary for the performance of its mission.

Business

Where the taxpayer is a business, the tax authority may pursue the business on the one hand, and leaders on the other. We talk about “ cumulation of responsibilities ”.

Responsibility of the business

As soon as it is registered at RNE: titleContent, the business has its own legal personality. For example, it can be prosecuted if an offense is committed on behalf of the business by one of its representatives (e.g., manager, liquidator). The business is then subject to adapted sanctions.

However, the criminal liability of the business cannot be accepted if the offense was committed by an employee without delegation of powers or particular functions in the company.

Similarly, if the offense was committed in the sole interest of the representative, only the latter’s liability may be accepted.

Responsibility of the manager

In parallel, the tax administration may also prosecute business executive(s) for the same offense.

The director is supposed to be aware not only of his tax and accounting obligations but also of their status of application in the company. He must personally monitor compliance with the tax law.

As such, the manager can be criminally prosecuted for acts committed by an employee. He is probably knowingly letting these breaches happen.

Example :

In case of misrepresentation, the manager of SARL is criminally liable even if he did not physically prepare and file the declaration. He cannot escape responsibility by hiding behind the fact that his accountant or his secretary is responsible for completing the tax returns.

On the other hand, the director is not criminally liable if he has consented to a delegation of powers to one of the business' employees (the delegate).

If the powers with respect to tax obligations have been delegated, it is no longer up to the officer to ensure that they are fulfilled. In this case, only the delegate is responsible for the breaches of the tax law.

To be valid, the delegation of powers must relate to the tax obligations in question and be consented to a company employee with the competence (technical knowledge), the authority (ability to take decisions) and means (financial and disciplinary) necessary for the performance of its mission.

Please note

The business and its leadership will not be systematically prosecuted jointly. The tax administration may hold the director criminally liable without condemning the business and conversely, it may recognize the guilt of the business alone, to the exclusion of any prosecution against the directors.

Accomplice in tax fraud

The accomplice is the one who helps intentionally facilitating the execution of the offense. Facilitation in tax evasion can take many forms, such as:

  • The accounting officer who participates in the implementation of a fraudulent tax arrangement
  • A notary who draws up a sales contract that does not reflect the reality of the transaction, which is in fact analyzed as a disguised donation in order to avoid transfer duties
  • The CFO who is making a mendacious case to unduly claim a tax credit
  • The accountant who goes into false invoice accounting and makes false tax returns
  • A banker who opens a “bridging account” to hide the taxpayer’s income.

The accomplice may also correspond to the one who incite the perpetrator to commit the offense, whether by a gift, a promise, a threat, an order or an abuse of authority.

Example :

The customer is complicit when he incites a company to evade VAT by abusing his authority over it because of his position as a single customer, in order to obtain abnormally low prices on the supplies provided.

In criminal matters, the perpetrator of tax evasion and his accomplices face the same penalties, that is to say main penalties in addition to additional penalties.

In addition, the tax administration may apply fiscal sanctions together with the criminal sanctions imposed by the judge.

Principal penalties

In the case of tax fraud, the perpetrator and his accomplices incur up to 5 years imprisonment and €500,000 fine (for natural persons) or €2 500 000 (for legal persons).

Penalties are imposed 7 years imprisonment and €3 000 000 fine (for natural persons) or €15 000 000 (for legal persons) where the offense has been committed in organized band or has been facilitated by one of the following means:

  • Opening accounts or signing contracts with organizations established abroad
  • The interposition of natural or legal persons established abroad. Interposition consists in introducing, in the relationship between the fraudulent taxpayer and another person, an intermediary established abroad in order to unjustifiably cause the incompetence of French tax law.
  • The use of false identity or documents or any other falsification. For example, using a false name and address to open a bank account to conceal funds. It may also involve relying on false invoices in order to certify the existence of fictitious expenses.
  • The justification of fictitious or artificial tax domiciliation abroad. The fraudster thus seeks to evade French tax law by unjustifiably claiming compliance with the tax law of another country (possibly a “tax haven”) in which he is indifferent whether or not he complies with his obligations.
  • The carrying out of a fictitious act or the interposition of a fictitious entity. For example, a contract of sale disguising a donation may be concluded or a commercial company may be misrepresented in association.

Please note

The judge may increase the fine to double the proceeds of fraud.

Moreover, a crime of facilitation of tax evasion shall be created as from 1er January 2024. This offense is completely autonomous, it exists independently of any prosecution of persons who actually committed fraud and their accomplices.

The offense shall be punishable by 3 years imprisonment and a fine of €250,000. The penalty shall be increased to 5 years imprisonment and €500,000 fine where the offense is committed using an online public communication service.

Additional penalties

People who commit tax evasion can be targeted one or more additional penalties.

It is necessary to differentiate the penalties applicable to a natural person (individual contractor or business representative) and those applicable to a legal person (business)

Natural person

A natural person is at risk of subsequent additional penalties :

  • Deprivation of civil, family and civil rights : the penalty relates to the right to vote, to stand as a candidate, to exercise a judicial function or to be an expert before a court, to represent or assist a party before a court, to give evidence in court other than for the purpose of making simple statements, and to be a guardian or curator.
  • Prohibition from practicingdirectly or indirectly, a liberal, commercial or industrial profession (for his own account or for the account of others)
  • Prohibition of directing, administering, managing or controlling in any way, directly or indirectly, a commercial or industrial company (for his own account or for the account of others)
  • Suspension of driving license, for a period of 3 years (6 years in the case of repeated offenses)
  • Posting and dissemination of the court decision
  • Deprivation of the right to grant tax reductions or credits, for a period of three years from the taxation of income in the year following that of the conviction. This new sentence has been applicable since the 1ster January 2024.
Legal person

A legal person shall incur subsequent additional penalties :

  • Dissolution
  • Prohibition of direct or indirect pursuit of one or more professional or social activities, definitively or for a maximum period of five years
  • Placement under judicial supervision for a maximum of 5 years
  • Closure of establishments used to commit the offenses, permanently or for a maximum period of 5 years
  • Exclusion from public contracts, whether definitively or for a maximum period of five years
  • Prohibition on making an offer to the public of financial securities or having their securities admitted to trading on a regulated market, whether definitively or for a maximum period of five years
  • Prohibition on issuing checks other than those that allow withdrawal of funds by the drawer from the drawer or those that are certified or to use payment cards, for a maximum period of 5 years
  • Confiscation of movable or immovable property which was used or intended to be used in the commission of the offense and which is owned or freely disposed of by the convicted person
  • Posting of the decision delivered or dissemination thereof either by the written press or by any means of electronic communication to the public
  • Prohibition of receipt of any public aid and any financial aid paid by a private person entrusted with a public service mission, for a maximum period of five years.

Tax sanctions

Criminal penalties imposed by the judge may to be combined with fiscal sanctions applied by the tax authorities:

  • Tax increase : failure to file a tax return within the prescribed period shall be punished by an increase in taxes of 10% to 80% depending on the nature of the facts.
  • Tax fine : failure to produce a document within the prescribed time limits shall be punished by a fine of €150. The fine may be increased to €1,500 in some cases.
  • Fiscal solidarity : the perpetrator of the fraud and his accomplices may be held jointly and severally liable to pay the tax evaded and the tax penalties attached thereto. In other words, the tax administration can turn to any of the convicted persons to obtain payment of the fraudulent tax.

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