In 2021, €10.7billion was paid into France’s state coffers as a result of tax inspections. We look at 10 different behaviours and inconsistencies which might trigger checks and potential penalties from the tax authorities.
Dramatic changes in income
If your income appears to go up and down in an irregular and unexplained manner, it may attract the attention of the tax authorities, even if the changes are due to a legitimate reason.
You will often be asked to clarify why your income has fluctuated, so make sure that you explain truthfully and clearly.
Tax authorities have a growing number of ways in which to identify people committing fraud, including public social media profiles and local press interviews.
Therefore, if someone posts references to their wealth online but does not declare a high income, it may trigger a tax inspection.
Online platforms such as Airbnb will also share details of earnings on them with the tax office if they are above €3,000/year.
Some 30% of inspections come after officials notice an incongruity between a person’s tax declaration and their visible lifestyle (train de vie).
False expenses claims
This issue particularly affects self-employed workers who can declare frais généraux (professional expenses linked to their business activities) to reduce the amount of tax they have to pay.
Exaggerating the amount paid out for these expenses can trigger a tax inspection, so you should take care to keep a detailed record of your accounts.
Consistently late tax returns
If you repeatedly return your income tax declaration after the deadline, you may attract the attention of the authorities.
It is therefore helpful to set alerts for yourself well ahead of the declaration deadline so that you can get started while you still have plenty of time.
A main home which is not really your main home
If you put your main residence on sale but the process drags on for too long and you have stopped living there for too long, the tax authorities can refuse to class it as your principal residence, thus making it eligible for capital gains tax (CGT).
This might happen, for example, if someone moves away quickly for work and leaves the property before they have a chance to put it on the market.
In addition, if you work from home and have declared to the tax office that part of it is being used for professional purposes, you should also declare this when the property is sold otherwise the tax office could query why it is being sold solely as a residence (with exemption from CGT).
Not enough IFI
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.
Foreign bank accounts
Online banks and neobanks are becoming increasingly popular, especially for people who often travel to different countries.
However, some of these institutions are not based in France, so in this case you will need to declare accounts opened with them on a separate form.
If you do not make this declaration, you face a fine of €1,500 per non-declared account.
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.
French accounts, meanwhile, should be known to officials.
Take care over nue-propriété within families
Parents can be tempted to make 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).
When they die, their children will become the owners of the property.
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.
Renting out a property owned through a Société civile immobilière
If you part-own a property as part of a Société civile immobilière (SCI) – which enables the management of a property which is owned jointly and can reduce tax liability – but decide to use it for commercial purposes such long-term rentals, you should change its tax regime.
In this case incomes from it will be subject to impôt sur les sociétés.
If you do not declare the change you risk being penalised.
A pension alimentaire is only for essential needs
If you financially support family members in need and declare this in your tax declaration, you will be eligible for tax breaks.
However, the sums paid should only go under the pension alimentaire heading – as opposed to being a potentially taxable gift – if they are for ‘essential needs’.
For example, if you gave a significant amount of money to an independent child earning at least the minimum wage, you would likely be seen to be breaking pension alimentaire rules.
Loans between family members
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.
Otherwise the loan may be considered as a gift.
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.
Abuse of the Pinel rental tax reduction system
People who have invested in the Pinel mechanism to obtain a tax reduction on a property bought for rental should respect certain conditions relating to limits on the amount of rent they can charge.
You should pay attention to the specific rules for your area, and any changes that might be made to them, as failing to do so could mean that you lose your tax reduction and are fined.