Checks by tax officials into people’s financial affairs resulted in an extra €7.8billion for state coffers in 2020 (the latest figures released).
Maximising tax revenues is now seen as more important than ever, meaning check-ups are increasing.
Everyone living in France must make a declaration of their worldwide income, though tax treaties help avoid double taxation.
Non-residents with French income, such as from renting out property, must also declare this income. Failure to do so could result in checks - and fines.
Here are eight points to bear in mind to make a contrôle fiscal less likely:
1. Declare all your overseas bank accounts (this is for residents)
Make sure you declare all your overseas bank accounts (and do not not merely declare the income from them). Not doing so can incur a €1,500 fine per account, or even more in certain states with no agreement with France on combating fraud. This does not include the major English-speaking states.
You must declare ‘neo bank’ online accounts and accounts for cryptocurrency. Check where such accounts and platforms are based – French accounts should be known to officials but all foreign ones must be declared by you.
Bear in mind that the cross-border sharing of information is common now. If you opened accounts in previous years, it is advisable to own up to them, as tax offices are likely to be more tolerant of genuine mistakes admitted to them than where they discover accounts themselves.
2. Declare any unusual change in income carefully
If your affairs are simple and your income regular, there is no particular reason for a check but unexpected ups and downs from year to year can attract interest. So ensure you declare any wind falls properly in case of having to explain yourself.
3. Be transparent about rental income
The tax office might also look out for inconsistencies between property ownership and incomes. For example, someone declaring a lot of rental income might be checked to see if they should have been declaring for property wealth tax.
Read more: How to declare French rental income
4. Know the limits of gift tax
Financial dealings between family members are also sometimes a red flag. For example, take care in the case of large loans, which could be seen as a disguised gift.
All large gifts, outside normal presents, can be taxable under droits de donation. If you lend €5,000 or more in a given year, including in several amounts or to different people, you are expected to declare this loan to the tax office, if the recipient has not done so.
If you receive loans of €5,000 or more in a given year, you should also declare. Find more on the process on the service-public website.
5. Pension alimentaire only for ‘essential’ needs
Similarly, watch out for pensions alimentaires – financial support to family members in need, which can allow for a tax break if you declare the support in your tax declaration.
Such sums should only be made under this pension alimentaire heading – as opposed to being a potential taxable gift – if they are to help with ‘essential’ needs.
Substantial sums given to a child who is already self-supporting – for example, if he or she has an income equivalent to the minimum wage (Smic) – are likely to be seen by the tax office as breaking this rule.
6. Attention with nue-propriété within families
Another situation is where parents have made an arrangement to reduce liability to inheritance tax by giving the nue-propriété (residual ownership) of their home to their children while they maintain the usufruit (lifetime use).
The children should not live in the home for extended periods unless a full rent is paid, as otherwise it can be seen as a disguised full gift of the home.
7. Make sure your income matches your lifestyle
People whose train de vie – lifestyle – does not seem in keeping with the income they declare might also be targeted.
Reportedly, tax officers read the local press to see if people are talking about activities that suggest sources of income they have not declared.
They are also allowed to look at social media and sites such as leboncoin and Airbnb, though only for information shared publicly.
Online platforms will share details of earnings on them with the tax office if they are above €3,000/year.
Most letting is declarable income, as is buying (or making) and selling, though in most cases not if selling your own used goods.
8. Evaluate your financial and real estate assets
If you are an IFI wealth tax payer, take care to give a ‘reasonable’ market valuation of your holdings.
Increasingly, tax offices are making checks, especially when properties are passed on or sold, to see if they have been valued realistically.
If necessary, it might be better to admit to a ‘mistake’ in the past, and pay extra tax.