The limitation period (délai de prescription) is the period during which the tax authorities may impose reassessments.
In the case of an undeclared foreign account, the rule is a 10-year limitation period. The longer the limitation period, the greater the role of the tax lawyer, since the potential reassessments will be all the larger.
Examples:
In 2019, the limitation period runs from 2009 to 2019. In other words, the tax authorities have until 31 December 2019 to reassess 2009, and the following years up to 2019. On the other hand, 2008 is time-barred; the tax authorities cannot reassess it.
In 2020, the limitation period runs from 2010 to 2020. In other words, the tax authorities have until 31 December 2020 to reassess 2010, and the following years up to 2020. On the other hand, 2009 is time-barred; the tax authorities cannot reassess it.
Indeed, the tax authorities have a limitation period extended to ten years for income tax and corporate income tax, applicable in the event of failure to comply with the obligation to declare accounts opened, closed or used abroad provided for in Article 1649 A of the French General Tax Code (Code général des impôts, CGI) (even if the accounts are merely "dormant").
This right of reassessment concerns only the income or profits generated by accounts held abroad for which the obligation to declare was not complied with.
However, it is the short limitation period of three years that applies if the taxpayer provides evidence that the total credit balances of the accounts held abroad did not exceed €50,000 at any time during the year for which those accounts should have been declared.
The tax authorities' right of reassessment may be exercised until the end of the tenth year following the year for which the tax is due, where the reporting obligations have not been complied with, that is to say where foreign accounts or foreign life insurance policies have not been declared.
However, in the event of failure to comply with the reporting obligation, this extension of the time limit does not apply where the taxpayer provides evidence that the total credit balances of their accounts abroad did not exceed €50,000 at any time during the year for which the declaration should have been made. The tax authorities' right of reassessment concerns only the income or profits relating to the reporting obligations that have not been complied with.
The Law of 30 December 2008 had introduced a special limitation period of ten years for income tax and corporate income tax, applicable in the event of failure to comply with reporting obligations concerning a State or territory that had not concluded with France an administrative assistance agreement to combat tax fraud and tax evasion allowing access to banking information; consult a tax lawyer to find out which agreements are concerned.
The Law of 28 December 2011 made three changes:
1° it removed the reference to States or territories that had not concluded with France an administrative assistance agreement to combat tax fraud and tax evasion allowing access to banking information; the special limitation period may therefore run until the end of the tenth year following the year for which the tax is due where the taxpayer has not declared a foreign account, even if it is located in a State that has an administrative assistance tax treaty with France;
2° it extended the special time limit to cases of failure to comply with the reporting obligation provided for in Article 1649 AB of the CGI (this article concerns the trustees of trusts, at least one settlor of which is tax-domiciled in France, who are required to declare the creation, modification or termination of these legal arrangements, as well as the market value of the assets, rights and income held in them);
3° it provided that the ten-year limitation period does not apply in the event of failure to declare a foreign account where the taxpayer provides evidence that the total credit balances of their accounts abroad is less than €50,000 at 31 December of the year for which the declaration should have been made.
Conditions for applying the 10-year time limit
For the ten-year limitation period to apply, the Law of 30 December 2008 laid down two cumulative conditions: one of the reporting obligations it listed had not been complied with, and that obligation concerned a State or territory that had not concluded with France an administrative assistance agreement to combat tax fraud and tax evasion allowing access to banking information.
As we have seen, the second condition was removed by the Law of 28 December 2011.
It is therefore sufficient for a foreign account, whatever the State in which it is located, not to have been declared for the 10-year time limit to apply, which creates significant tax risks for which the assistance of a tax lawyer seems highly advisable.
What conditions must be met to benefit from the short 3-year limitation period?
The ordinary limitation period of three years applies only if the taxpayer provides evidence that the total credit balances of the accounts held abroad by the taxpayer did not exceed €50,000 at any time during the year for which the declaration should have been made.
In practice, until now, for the limitation period to be only three years, it was sufficient for the taxpayer to prove that the total credit balances of their foreign accounts were below €50,000 at 31 December, for example by producing the statement of all accounts held abroad at that date.
From now on (Law no. 2018-898 of 23 October 2018), the burden of proof will be heavier, since it will be necessary to produce all the statements for the year for all foreign accounts, in order to establish that the total credit balances did not exceed €50,000 at any time during the year.
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