Law verified as at 5 October 2026
The rules cited in this article are those in force on that date. They may change with the 2027 Finance Law and the presidential election of April 2027.
Three notions are commonly confused: tax optimisation, abuse of law and fraud. They refer to three separate regimes, with different criteria and penalties. A taxpayer may choose the least-taxed route without committing any fault. They cross a first line when their act has no motive other than tax, and a second when they evade tax by fraudulent means.
The framework for a planned departure is set out on our preparing to leave France page.
Tax optimisation (lawful tax planning): choosing the least-taxed route
No provision requires the taxpayer to choose, among several legally available solutions, the one that results in the heaviest tax burden. Opening an equity savings plan (plan d’épargne en actions), opting for taxation under the progressive scale rather than the flat rate, choosing an actual-income regime rather than a micro regime, transferring bare ownership rather than full ownership: these choices use schemes provided for by law, under the conditions it sets.
The tax regime chosen must match the reality of the transaction. It is this match, and not the intention to save tax, that distinguishes optimisation from what follows.
Abuse of law under Article L64: the French anti-abuse rule
Article L64 of the French Tax Procedure Code (livre des procédures fiscales) allows the tax authorities to disregard acts that fall into two categories.
- Sham acts, which correspond to no reality: a company with no activity, a lease with no occupation, an agreement that is not performed.
- Acts which, seeking the benefit of a literal application of the texts contrary to the objectives pursued by their authors, could not have been inspired by any motive other than avoiding or reducing the tax burden.
The second case requires an exclusively tax-driven purpose. A genuine economic, family or estate-planning motive, however modest, defeats the characterisation.
The penalty is set out in Article 1729 of the French Tax Code (CGI): a surcharge of 80%, reduced to 40% where it is not established that the taxpayer was the main initiator of the acts or their main beneficiary.
The “mini” abuse of law under Article L64 A
Article L64 A of the Tax Procedure Code extends this review to acts whose main purpose, and no longer exclusive purpose, is to avoid or reduce the tax burden. The difference is considerable: a structure with an ancillary economic motive, but whose dominant objective is tax-driven, falls within its scope.
This mechanism applies to reassessments notified from 1 January 2021, concerning acts carried out from 1 January 2020. As with Article L64, the taxpayer or the tax authorities may refer the matter to the Abuse of Law Committee (comité de l’abus de droit fiscal) in the event of disagreement.
Tax fraud under Article 1741: tax evasion as a criminal offence
Here the ground shifts: it is no longer a matter of recharacterising an act, but of imposing a criminal penalty for wilfully evading tax. Article 1741 of the CGI covers wilful failure to file a return, concealment of taxable sums, organising one’s own insolvency and other fraudulent schemes.
| Situation | Penalties |
|---|---|
| Tax fraud | 5 years’ imprisonment and a €500,000 fine, an amount that may be increased to twice the proceeds of the offence |
| Aggravated fraud, in particular use of accounts or contracts taken out abroad, interposition of entities established abroad, fictitious tax domicile abroad, use of a false identity or forged documents, fictitious or artificial act | 7 years’ imprisonment and a €3,000,000 fine, an amount that may be increased to twice the proceeds of the offence |
Additional penalties apply, including deprivation of civic, civil and family rights, in principle mandatory, for a period of up to five years (ten years for a member of the Government or an elected official).
Three structures regularly challenged
The sham domicile. A taxpayer declares that they reside abroad while keeping their family home, their day-to-day spending and the management of their affairs in France. The tax authorities recharacterise the domicile, tax worldwide income and apply surcharges. A fictitious tax domicile abroad is expressly listed among the aggravating circumstances in Article 1741. Our dedicated article: penalties for a sham departure.
The holding company without substance. An interposed company without resources, without its own decision-making and without real activity, set up to benefit from a preferential regime, may fall within the scope of Article L64 as a sham.
The overly quick gift and sale. A gift of shares followed by an almost immediate sale, whose proceeds in fact return to the donor, is analysed as lacking donative intent. The lawful mechanism is described in our article: gifting shares before leaving.
A worked example
A company director gives his two children shares valued at €2,000,000, then the company is sold three weeks later. The price is paid into accounts opened in the children’s names, over which the donor holds a general power of attorney, and it then funds the purchase of a property occupied by the donor.
- Without recharacterisation: the gift wipes out the unrealised capital gain, and gift tax is calculated on €900,000 per child after the allowance.
- With recharacterisation: the tax authorities disregard the gift. The capital gain on the sale is taxed in the donor’s hands. On a capital gain of €1,800,000 at the flat rate of 12.8%, the tax amounts to €230,400, excluding social levies. The 80% surcharge under Article 1729 brings the reassessment to €414,720 on this item alone, before late-payment interest.
The difference does not stem from the structure itself, which is lawful, but from the general power of attorney and the reinvestment for the donor’s benefit.
How to tell where you stand
- Does the act have a motive other than tax? Document it at the time of the transaction, not at the time of the audit.
- Is that motive dominant or ancillary? This is the test under Article L64 A.
- Does the act produce all its effects? Real divestment, effective management, no return of the asset or the price to the person who carried out the act.
- Have the reporting obligations been met? This is the tipping point towards criminal law.
Key points
- Tax optimisation is lawful: no provision requires you to choose the most heavily taxed route.
- Abuse of law under Article L64 requires an exclusively tax-driven purpose; Article L64 A is satisfied by a mainly tax-driven purpose, for acts carried out since 2020.
- Fraud under Article 1741 is a criminal matter, with heavier penalties where the domicile abroad is fictitious.
The line between optimisation and abuse of law is drawn case by case. Our tax lawyer in Paris analyses the planned structure, may request an advance tax ruling (rescrit) and assists you if the tax authorities challenge it.
FAQ
What is the difference between tax optimisation and abuse of law?
Optimisation uses a legal scheme under the conditions provided for by law. Abuse of law targets a sham act, or an act which, through a literal application of the texts contrary to their authors’ intention, could not have been inspired by any motive other than tax.
What is the “mini” abuse of law?
The mechanism in Article L64 A of the French Tax Procedure Code, which catches acts whose main, and not exclusive, purpose is to avoid tax. It covers reassessments notified since 1 January 2021 concerning acts carried out since 1 January 2020.
What surcharges apply in the event of abuse of law?
80% under Article 1729 of the CGI, reduced to 40% where it is not established that the taxpayer was the main initiator of the acts or their main beneficiary.
When is tax fraud established?
When the taxpayer wilfully evades the assessment or payment of tax, by failing to file, concealing sums, organising insolvency or other schemes. The intentional element is required.
Can the matter be referred to the Abuse of Law Committee?
Yes, in the event of disagreement over a reassessment based on Article L64 or Article L64 A. Referral is open to the taxpayer and to the tax authorities alike.
Have your situation assessed
We review a structure before it is implemented, or defend it when it is challenged. See our director tax optimisation lawyer and criminal tax defence pages. Every situation is different and calls for a specific analysis.
Official sources
- Article L64 of the French Tax Procedure Code, abuse of law – Légifrance (in French)
- Article L64 A of the French Tax Procedure Code, acts with a mainly tax-driven purpose – Légifrance (in French)
- Article 1729 of the French Tax Code, surcharges – Légifrance (in French)
- Article 1741 of the French Tax Code, tax fraud – Légifrance (in French)
- Article 200 A of the French Tax Code, flat rate of 12.8% – Légifrance (in French)
- Article L169 of the French Tax Procedure Code, reassessment period – Légifrance (in French)
This article presents the law for general information purposes, verified at the date of publication. It does not constitute legal advice. Every situation is different and calls for a specific analysis. Content compliant with the professional conduct rules of the legal profession.
