TAX EVASION – INDIVIDUALS Rennes Law School 1. Tax fraud: a breach of tax rules in order to avoid taxation. Customary in Latin countries The economic.

TAX EVASION – TAX EVASION – INDIVIDUALSINDIVIDUALSRennes Law SchoolRennes Law School

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Tax fraud: a breach of tax rules in order to avoid taxation.

Customary in Latin countries

The economic crisis context led to an increase due to budgetary restrictions.

INTRODUCTION

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I- TAX EVASION

PENALTIES

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Penalties-General rules:

• Obligation for taxpayers to declare assets;

• Penalties for failure to declare:

• 40% of the evaded tax amount;

• 80% in case of unreported activities.

A – PENALTIES FOR FAILURES TO DECLARE ASSETS

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Criminal penalties:

• Only applied after examination of the case by the Tax Infrigement Commission (“Bercy safety lock”);

• Criminal courts may impose monetary penalties of up to €500,000 along with a maximum prison sentence of 5 years.

• Aggravating factors:• shell company arrangements;• unreported foreign accounts.

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Criminal penalties are rarely applied; the “Bercy safety lock” is used for purposes of setting public examples.


Voluntary disclosure procedure:

• This procedure is available only if taxpayers voluntary come forward and admit to having committed a fraud. If a tax assessment reveals a fraud, a taxpayer may no longer claim the

benefit of the regularization procedure.

• Distinction between active tax evaders and passive tax evaders:

• Both active and passive tax evaders have to pay the income and wealth tax they should have paid (over the last 6 years) but penalties vary:• Active tax evaders are subject to a 30% penalty (the evaded tax amount);• Passive tax evaders are subject to a 10% penalty (the evaded tax amount).

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The voluntary disclosure commission

• The taxpayers have to :• Provide the commission with amended returns properly

reporting the previously undisclosed foreign assets along with documents proving the existence of the assets;

• Compute and pay the amount the taxpayer owes.

The tax authorities were able to recover €1.9 billion in 2014 and it is estimated that this amount should amount to €2 billion in 2015.


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Application of the abuse of process rule:

• Penalizes tax schemes set up by individuals.

• Punishes artificial arrangements:

─ set up exclusively for tax purposes;

and─ which are contrary to Parliament’s intent.

• Broadly defined encompasses a great number of tax schemes.

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B- PENALTIES FOR ABUSE OF PROCESS

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How to avoid being subject to the abuse of process rule:

• Asking the French tax administration whether the transaction constitutes an abuse of process (the French equivalent of Revenue Ruling in the US);

• No response of the tax authorities within a 6-month period.

• Request :─ made to the tax authorities;─ in writing;─ prior to entering the contract; ─ along with any document the tax authorities might request.

• The tax authorities’ decision is only applicable:─ to the taxpayer who made the request;─ following the abuse of process principle.

Two types of abuse of process:

• By simulation/ reliance on a fiction: scheme which does not reflect an economic reality.

• By fraudulent evasion of the law: legal scheme but does not comply with the spirit of the law.

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Characteristics of the procedure:

• The authorities or the taxpayer may take their case to a committee, known as the Abuse of Process Committee.

• The tax authorities are not required to follow the Committee’s findings.

• However, the taxpayer bears the burden of proof should the Committee give an adverse opinion.

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I- Tax evasion penaltiesB- Penalties for abuse of process

Sanctions:

• 80% increase in evaded duties to be repaid.

• 40% when the taxpayer proves he/she neither set up nor directly benefited from the tax scheme.

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II. PREVENTING

INDIVIDUAL TAX

EVASION

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Tax audits can only be efficient if they are based on relevant information.

The aim is to detect fraud mechanisms, to collect and to centralize information in order to initiate audits;

Several provisions:

A- GENERAL ANTI-TAX FRAUD MEASURES

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• The obligation to declare capital transfers; • The obligation to declare accounts opened

or used outside of France; • The prohibition to settle certain debts in

cash; • The use of “data mining”; • The impact of TRACFIN.

Registration of fund transfers:

Taxpayers must declare any transfer out of France exceeding €10,000 with Customs; In the absence of such a declaration, the funds so transferred are considered income.

Registration of opened, used or closed foreign accounts:

Individuals and some entities established in France have to register their foreign accounts;

Failure to do so is subject to penalties.

Prohibition of cash payments of certain debts:

Cash wages above €1,500 are forbidden (penalty limited to 5% of the amount paid); There is a prohibition on cash payments depending on the location of the debtor or

his/her activity (whether the debtor carries a professional activity or not).


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The French “data mining” experiment:

Tax authorities are allowed, by the CNIL (French Data Protection Agency), to engage in the processing of personal data;

This data analysis permits to analyse a large amount of separate data to obtain fraudster profiles;

The proposed processing seeks in particular to prevent, investigate, detect and prosecute criminal offenses;

The processing is not meant to contain lists of names of persons to be monitored but is used exclusively for fraudulent behavior modeling.


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=> Data mining could be an efficient tool for preventing tax evasion and social security fraud.

The prevention of tax evasion by TRACFIN:

TRACFIN is a centralized system for financial intelligence. Its role is to collect data communicated on a compulsory, optional or voluntary basis;

TRACFIN passes on the information to the tax authorities so it can be used for the purpose of tax investigations or criminal prosecution;

TRACFIN passes on the information to the district attorney when the activities revealed are:•punishable by more than one year of imprisonment; or

•In connection with terrorist financing.

=> To conclude, we have to underline that a cooperation between States is needed for the collection of information be efficient.


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1. The right of communication

The action can only be efficient if it is based on sound information.

It is necessary to perform a critical analysis of tax returns, using all the information, supporting documents and, if necessary, complementary information requested from the taxpayer or collected from third parties (customers, suppliers, administrations) pursuant to the right of communication.

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B - SPECIAL TAX FRAUD PREVENTION MEASURES

The right of communication is an information-gathering tool (the use of which is strongly limited by the French legislation). It allows the collection of companies’ or administrations’ data and accounting records from companies, administrations.

Thanks to its wide scope, it is a particularly efficient tool :

May target amounts paid to third parties;

The judicial authority has to communicate to the tax authorities every piece of information indicating an alleged tax fraud;

Can be used with various persons or entities (such as banks).

The only limit : doctor-patient confidentiality or attorney-client privilege.

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2. Home visits by the tax authorities

Since 1984, the French tax authorities have been allowed to carry out home visits.

Visits may take place between 6 a.m. and 9 p.m. and only on the premises authorized by the judge and in the presence of the occupant of the premises.

The authorities may seize any document found on the premises, regardless of the place of storage, as soon as they are obtainable from the company.

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Moreover, documents cannot be set aside on the sole ground that their origin could be of an illicit nature, as long as they are legally conveyed to the tax authorities.


3. Searches by the tax authorities (search of a person’s home under public prosecutor supervision)

In 2013, around 35 searches took place.

Suspects may be held in tax police custody and subjected to questioning. The preliminary investigation, which is initiated either by the police or the public prosecutor’s office, may concern all types of offences.

Tax searches, visiting a person’s home and seizing documents for use as evidence, cannot take place without the taxpayer’s express agreement.

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4. The Blatant fraud

Introduced in France in 2008 for serious cases of manifest or obvious fraud, such as false invoicing.

It is a serious breach of human rights and freedoms, it can only be implemented in limited cases set out in the law:

o Only very rarely;

o Only against business activities because of the risk that the tax authorities may not be able to recover unpaid taxes if they do not take immediate action (e.g. receiverships).

Around 240 Flagrant Tax Fraud cases are recorded every year in France, raising hundreds of millions of Euros in penalties.


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5. Tax investigation police

Established in 2010 in order to enhance the tax authorities' capacity to fight against complex forms of tax evasion.

For the first time, the tax officers with a knowledge of the fundamental principles of tax law, criminal procedure and investigative tools are working hand-in-hand within one squad enjoying the same prerogatives.


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►The National Squad for the Repression of tax Crimes, both discrete and dissuasive, provides effective support in the fight against tax evasion.

►The Tax Investigation Police force can seize documents, conduct searches, hold suspects in custody, conduct hearings, use wiretapping…(investigating tax officers have the same powers as the criminal police).

QUESTIONS?

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Thank you for your attention, your invitation and your warm welcome.

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TAX EVASION – INDIVIDUALS Rennes Law School 1. Tax fraud: a breach of tax rules in order to avoid taxation. Customary in Latin countries The economic.

Documents

tax fraud

tax evasion penalties

tax purposesand

tax assessment

wealth tax

active tax evaders

tax authorities decision

evaded tax amount80