In case of serious fraud, the authorities can decide to use exceptional procedures. For these always technical and complex affairs, legal assistance from a core-specialized law office is essential in order to defend taxpayers’ rights.
Our experience of complex cases brought us the essential knowledge for controlling such situations of tension. The exceptional procedures are the start of a turmoil that requires keeping a steady course !
- Abuse of right
- Tax fraud
- Fiscal search
- The engagement of liability
ABUSE OF RIGHT: A WEAPON OF MASS DESTRUCTION
The authorities have at their disposal the abuse of right repression procedure to rule out any purely artificial legal construction intended to avoid taxations. Besides the recalled rights, the authorities apply a very heavy penalty up to 80% of the additional tax assessments (or in certain cases 40%, according to Article 35 of the Law no. 2008-1443 of 30/12/2008).
Proving skillful tax planning differs from abusive practice.
To differentiate abusive practices from simple and skillfull tax planning, it is necessary to have a thorough knowledge not only of the tax law but also of the day-to-day running of the company, the evolution and the internationalization of the business and the solutions which are implemented to face them.
Our objective is therefore to demonstrate this «skillful tax planning».
An exceptional power, but well regulated
The use of this procedure is subject upon the respect for the taxpayer guarantees. We carefully watch the full respect for these rights as their violation incur the invalidity of the taxations.
PROSECUTION FOR TAX FRAUD: THE ULTIMATE PENALTY
The taxpayer can be summoned to appear in front of the criminal court either directly after an investigation, or, in some rare cases, after the hearing in front of the examining judge.
In addition to a fine and a prison sentence (most of the time suspended, except for repeated infraction), the criminal court condemns the responsible party to pay together with the company all due taxes that have been defrauded.
Tax fraud charges can be imposed on:
- any taxpayers who fail to submit their tax returns despite repeated requests from the authorities,
- any taxpayers who are engaged in an undeclared professional activity,
- any businesses with rejected accountings which are undergoing an income tracing,
- any businesses which are suspected of tax fraud ( VAT carousel for example)
- or suspected of fiscal frauds related to international schemes ( indirect transfer of profit overseas, for example)
Criminal proceedings for tax fraud are rare, but steadily increasing since a few years (about 1.500 complaints in 2015).
- A legal proceeding of fiscal investigation was created by the amending Finance Act of December 30th, 2009 to complete the repressive measures against the international tax fraud. In this context, a National Brigade of Repression of the Fiscal Crime ( BNDRF) was created in 2010 within the Home Office. It is made up of officers and agents of judicial police and judicial and fiscal officers, collaborating together and endowed with a national jurisdiction. These agents are attached to a new central service, the Central Office of fight against corruption and the financial and fiscal offences (OCLCIFF) created within the head office of the Criminal Investigation Department. This central office originates from the former national Division of financial investigations (DNIFF).
- Legislation has raised the penalty ceiling from 37,500 € to 500,000 €, in addition to a penalty of imprisonment of 5 years and additional penalties. It has also created an aggravated crime of tax fraud, which is liable to a 2 million euro fine and 7 years of detention.
- The time period to file tax evasion indictments has changed from 3 to 6 years, according to the Act of 6 December 2013, codified in Article L230 of the French Tax Procedure Code (FTPC).
To demonstrate a lack of proof of intent and that the tax base is erroneous.
Regarding tax fraud, we must verify the reliability of the tax criminal proceedings. We must also challenge the tax base retained by the authorities. First and foremost, we must demonstrate that the element of intent is unfounded. These cases require a close collaboration with our colleagues specialized in criminal law who intervene alongside us.
FISCAL SEARCH: AN ADMINISTRATIVE PROCEDURE, BUT QUASI-CRIMINAL IN ITS IMPLEMENTATION
On the basis of numerous sources of information, authorities suspecting a taxpayer of tax fraud may be authorized to search and seize.
After a thorough investigation, tax authorities may ask for the authorization of the liberties and the detention judge to unexpectedly intervene in the personal and professional places of residence of the taxpayer and seize all the elements potentially connected to the presumed fraud.
This procedure described by Article L 16 B of the French Tax Procedure Code is carried out by the National Directorate of Tax Audits (DNEF), either before an account verification, through an Examination of Personal Tax Situation (ESFP), or during an audit.
- In addition to inform our client of his or her rights, we will go over the aggressive nature of this traumatizing procedure, so as to help to face this extremely critical period.
Through a judgment dated 21 February 2008, the European Court of Human Rights judged the text within the Article L 16 B of the French Tax Procedure Code to be incompatible with Article 6 of the European Convention of Human Rights (please see our news section – In French)
- The text within the Article L 16 B of the French Tax Procedure Code has thus been submitted to thorough modifications concerning both recourses and authorization orders. Procedural safeguards have been strengthened. It should be noted that from this point forward, the taxpayer may appoint a lawyer to assist during the search and seizure procedure.
- Our expertise of the forms of this procedure allows us to check the technical regularity at every stage: upstream, regularity of the prescription of the judge authorizing the search; downstream, regularity of the of the operations during the search.
THE ENGAGEMENT OF THE JOINT CRIMINAL LIABILITY OF A COMPANY DIRECTOR
Proceedings engage the liability of a company director: a civil procedure is driven by the administrative courts against the director of the company.
The tax collection authorities may summon the director of a company before the High Court to obtain the collection on his/her personal assets in case of the company’s failure to pay due to compulsory judicial liquidation.
This action, under Article L.267 may be used in two cases:
- serious or repeated noncompliance by a legal entity of tax obligations: for example, serious lack of adequate bookkeeping or irregularities in implementation,
- fraudulent manipulation.
This action can be used by the authorities, in addition to the procedure for tax fraud, in order to obtain the totality of all tax collections due by a company when the time limitations of prosecution do not allow full compensation for the concerned period.
It is strictly regulated by numerous jurisprudence of the Court of Cassation. The judge shall in particular ensure that the authorities ascertain that these errors which make impossible the collection by the Treasury, are indeed imputable to the company director.
This impossibility can sometimes result from the absence in due time of verifications of the tax base and/or the collection services. We can also take advantage of this procedure to open a litigation on the related taxations, even though the concerned company did not dispute them in due time or even lost the previous dispute.
Indeed, when these taxations are recovered from the director, this new event sets another deadline allowing to file a complaint, this deadline begins upon receipt of notice of the recovery services.