Undeclared foreign bank accounts: how to regularize them with the tax authorities in 2020?
You may have discovered on your tax return this year that box 8UU has already been pre-ticked, inviting you to file a N°3916 return. This indicates that the tax authorities are aware that you have a foreign bank account.
In pursuit of its objective of combating tax fraud, the OECD has obliged countries to automatically exchange data annually on bank accounts held in the country in question by foreign tax residents.
While there’s nothing illegal about owning a bank account abroad, it must be declared annually to the tax authorities, and of course the funds held and income generated on these bank accounts must have a “legal” origin.
The specific service for processing rectifying declarations (“service spécifique de traitement des déclarations rectificatives” – STDR), which enabled regularization in return for a waiver of criminal proceedings and a reduction in fines and surcharges, has been closed since December 31, 2017. If you have not regularized your assets held abroad, this is certainly your last chance to demonstrate your good faith by proceeding with a spontaneous regularization before the first requests for information are sent out by the tax authorities in August-September.
Undeclared foreign bank accounts: How to regularize them with the tax authorities in 2020?
1. What are your obligations if you have a foreign bank account?
Individuals, associations and non-commercial companies domiciled or established in France are required to declare, at the same time as their income tax returns, the references of financial accounts opened, held, used or closed by them abroad (CGI art. 1649 A, paragraphs 2 and 3).
A separate foreign account declaration must be filed for each account on form no. 3916, either directly online or on plain paper, using the same information as on the form. This form must include your surname, first name, address, date of birth and bank details (bank name, address, account number, opening and closing dates).
2. What are the penalties and deadlines if you fail to declare your foreign bank account?
If you fail to declare your foreign bank accounts, you may incur 4 financial penalties:
- A fixed fine of €1,500 per undeclared account over the last 5 years, rising to €10,000 if the account is held in a country that has not signed an administrative assistance agreement with France (CGI, art. 1736 IV and L 188, para. 2 of the LPF).
Example: If you are a French tax resident and have not declared 2 foreign bank accounts, the fine could be €15,000 (=€1500 x 5 x 7).
- A reminder of income tax if the bank account yields interest, dividends or capital gains, with a recovery period of 10 years or 3 years for “small accounts” where the assets held were less than €50,000 on December 31 of the year for which the declaration is made. In order to benefit from the reduction of the recovery period to 3 years, it is in principle necessary to produce all statements for the year for all foreign accounts, and not just the year-end statement, in order to establish that the total credit balances did not exceed €50,000 at any time during the year. (L 169, paragraph 5 of the LPF).
- A wealth tax (ISF) reminder if the assets lead to a net worth in excess of €1.3 million. In this case, the recovery period is 10 years.
Example: we are in 2020. The following ISFs may be adjusted: ISF 2010, ISF 2011, ISF 2012, ISF 2013, ISF 2014, ISF 2015, ISF 2016, ISF 2017. The years 2018, 2019 and 2020 are in principle not concerned, since the real estate wealth tax (IFI) has replaced the ISF and only concerns real estate assets.
- Income tax reminders also give rise to the application of a surcharge of 80% or 40% on the amount of tax plus the payment of late payment interest of 2.40% per year of delay from 2018 and 4.80% per year of delay before 2018.
- Reminder of inheritance tax if funds come from an undeclared estate.
- Presumption of income involving taxation of the funds in the bank account at a maximum rate of 60% (the 60% rate applies if you are unable to prove the origin of the funds and the tax authorities treat the funds as a gift to a third party). These tax reminders may give rise to the application of a 40% surcharge, plus interest for late payment. You can provide proof to the contrary that the funds, by virtue of their origin, do not have to be taxed. (CGI, art. 1649 A paragraph 3).
Failure to declare assets held abroad, or fraudulent evasion of the assessment or payment of all or part of taxes, constitutes aggravated tax fraud when the acts were facilitated by accounts opened abroad.
This offence is punishable by a fine of 3,000,000 euros and 7 years’ imprisonment. A supplementary penalty of deprivation of civic, civil and family rights may be added (CGI, art. 1741).
Since the end of 2018, the “Bercy lock”, under which only the tax authorities were able to forward tax fraud cases to the public prosecutor’s office, has come to an end. Henceforth, for the largest tax fraud cases, the tax authorities must automatically inform the public prosecutor’s office of any breaches involving duties in excess of €100,000 that have led to the application of a surcharge of 40% or 80%. As a result, the tax authorities no longer decide whether to initiate criminal proceedings in the most serious cases of tax fraud. It is now up to the public prosecutor to decide whether or not to initiate criminal proceedings against tax evaders.
3. What should I do if I’ve received a tax return with box 8UU pre-ticked?
You have 3 options:
1°) You do not declare an account by unchecking box 8UU and do not complete the 3916 declaration. We do not recommend this practice.
2°) You complete the n°3916 declarations and wait for a possible audit. This is a risky position, as it will be very difficult to negotiate when you receive a request for information to which you have only 1 month to respond.
3°) You carry out a spontaneous regularization of your foreign assets with the help of a tax lawyer.
How does a spontaneous regularization of undeclared foreign bank accounts work?
Since the closure of the STDR (Service de traitement des déclarations rectificatives) on December 31, 2017, there is no longer a standardized regularization procedure. However, it is still possible to regularize one’s tax situation spontaneously no longer allowing taxpayers to benefit from the favorable conditions of the circular.
In practice, to request regularization, you will need to submit a complete file to your local tax office or to the French tax authority (DIRCOFI), depending on your situation. Generally, we contact an inspector directly to explain the case anonymously, before sending the file to the right person in the tax department.
This file must include the following documents:
- Letter of compliance ;
- Certificate of bank account ownership;
- Bank statements for the last 10 years;
- Amending income tax and wealth tax returns;
These documents must also be accompanied by a written statement attesting to the origin of the funds and the state of your assets on January 1 of each year not barred by the statute of limitations.
As the regularization procedure is no longer “standardized”, a great deal of negotiation will be required with the inspector in charge of the regularization, in particular to negotiate the absence of criminal prosecution.
That’s why it’s so important to be assisted by a tax lawyer in your regularization procedure. Our tax lawyers are available to assist you with your tax regularization case. AGN Avocats’ tax department has already carried out the regularization of several foreign bank accounts held directly or through an intermediary structure such as a trust or foundation (Spain, Portugal, Israel, Germany, Switzerland, Luxembourg, United States, United Arab Emirates, China…), and we have had several contacts with the inspectors assigned to the STDR cells and with the various banking establishments.
2020 is undoubtedly the year of the last chance for holders of undeclared foreign bank accounts, so don’t hesitate to contact us by telephone or e-mail, or to make an appointment online at www.agn-avocats.com.
AGN AVOCATS – Tax Department
09 72 34 24 72