On 29 October 2014, a multilateral agreement, signed in Berlin by France among others, organised the automatic exchange of bank account information.
Since then, regularisations of foreign accounts have been on the rise. The procedure for regularising foreign accounts has, however, been different since 1 January 2018, as the special regularisation unit (Service de traitement des déclarations rectificatives, STDR) has been abolished.
When bank accounts are held by non-residents, the information is automatically communicated to their country of origin.
Between 2017 and 2018, this standard was extended to more than a hundred countries worldwide. States formerly regarded as tax havens, such as Switzerland, Israel and the Bahamas, have put an end to banking secrecy.
Many have followed this model to put an end to tax evasion at international level, under political pressure from the G20 members, initiated by the United States.
In the face of these new conditions, regularised foreign accounts are ever more numerous. Once this step has been taken, the holders of these accounts must still comply with certain obligations. Our tax law firm has handled numerous procedures of this kind and is able to assist you whatever the State in which the foreign account is located.
Among the accounts concerned, tax residents must declare the following:
• All accounts held abroad, whether open or closed.
The law of 23 October 2018 extended the obligation to accounts merely held abroad on which no transactions have been carried out (inactive or dormant accounts).
The decree of 26 December 2018 set 1 January 2019 as the date of entry into force of the new obligation.
This reporting obligation concerns the account holder themselves but also persons who hold a power of attorney over the account. The balance and origin of the assets do not have to be stated in this declaration.
• Capitalisation contracts or investments must also be included in each declaration. Savings products and life insurance contracts are therefore logically concerned. For these items, the declaration is made on form 3916-3916-bis, attached to the income tax return. For each contract, the corresponding number, the bank where it is held and its domiciliation must be specified.
Since 1 January 2019, all accounts held outside France are concerned, even if they have not been used. Any oversight or omission may be penalised by a fine of €1,500 per year and per account.
The income received on these bank accounts, for its part, is subject to a separate declaration via forms 2047 and 2074, which our tax law firm can prepare. This operation is generally more complex because it must include the capital losses and gains recorded during the year. Information on allowances based on the holding period can be obtained from a tax lawyer.
The regime for declared accounts
The tax regime varies according to the size of the account held:
• For foreign accounts with capital of less than €50,000: the regularisation remains limited. When these accounts have generated income, the reassessment period is reduced to 3 years.
However, to guard against prosecution for failure to declare, it is preferable to comply with one's tax obligations. Becoming compliant with the tax authorities makes it possible to limit the amount of reassessments and the risk of criminal prosecution.
• For taxpayers liable to the real estate wealth tax (impôt sur la fortune immobilière, IFI) (formerly the ISF, abolished in 2018), regularisation may lead to larger adjustments. While some surcharges are in the region of 40% depending on the situation, they can climb to 80% in others. People who were liable to the ISF (abolished in 2018) therefore had every interest in declaring their accounts abroad as soon as they were opened. Subsequently, they will have to file annual declarations in accordance with tax legislation, which our tax law firm is able to do.
• The largest accounts, notably those holding several million euros, are increasingly facing criminal penalties. Criminal sentences and fines may be added to the tax regularisation. It is therefore preferable to regularise voluntarily in order to limit the risk of criminal prosecution, which can take on an impressive scale.
The cost of a voluntary regularisation is generally lower than that of a tax reassessment.
The disclosure of accounts is becoming more and more frequent. This is due to cooperation between countries. It is therefore preferable to take the initiative, in particular with the assistance of a tax lawyer, to avoid this outcome and having to undergo an audit, which is often long, stressful and more costly than a voluntary regularisation.
Obligations for accounts to be regularised
All bank accounts held abroad are covered by these declarations. Tax residents must therefore carry out these regularisations as soon as possible. These steps, which your tax lawyer can take on your behalf, must be carried out even if the accounts were not opened for the purpose of concealing funds from the tax authorities.
People with dual nationality are not exempt from this obligation. Indeed, tax residence is the reference point for determining in which country this declaration must be made. It is therefore not possible to hide behind this particularity. Moreover, cooperation between countries makes it possible to check whether declarations have been made in another country.
To regularise one's foreign account or accounts, it is advisable to contact a tax lawyer. The file to be put together is indeed often complex and cumbersome.
The reassessment period will cover the last ten years when the assets exceed €50,000 and the last three years when they are below this ceiling.
Voluntary declarations sometimes benefit from the leniency of the tax authorities. In all cases, it is wise to carry out one's regularisation before the final deadline for filing one's income tax return. In this way, it is possible to avoid an additional year of fines.
The risks in the absence of regularisation
In the absence of regularisation, the tax authorities rely on the information gathered from the countries where these accounts are located to send requests for information. The taxpayer is required to respond to them as quickly as possible. It is then advisable to be as precise as possible in responding to this request.
A time limit is set for returning the response. Sincerity and completeness of the information provided are then recommended to avoid worsening the situation with the tax authorities.
The origin of the funds must then be proven, failing which ex officio taxation (taxation d'office) at 60% may apply. This taxation is then added to penalties and surcharges. The bill can therefore quickly become significant, even crushing, for anyone who does not submit a clear and complete file. The request for information offers an opportunity to minimise both the tax and criminal consequences. Taxpayers are therefore advised to seize it to regularise their situation.
On receiving a request for information, the taxpayer must gather the documents needed for a regularisation file. All supporting documents must be sent to the Department making the request so that it can examine the situation. Once the file is complete, it is sent to the Department, which will have to process it. The Department ensures that the file is complete and makes the necessary reassessments.
Obligations after a regularisation
Once the account abroad has been declared and a regularisation has been carried out, the taxpayer must continue to follow the tax regulations, which require all accounts to be declared annually. These annual declarations are made using forms 3916, 2047, 2074 and 2042.
Our tax law firm can assist you.
