Key points
- Abuse of law (abus de droit) in tax matters allows the tax authorities to disregard a sham act, or an act motivated solely by the aim of avoiding or reducing tax, contrary to the objectives of the provisions applied.
- The tax reassessed is subject to an 80% surcharge, reduced to 40% if it is not established that the taxpayer was the main initiator of the act or its main beneficiary.
- The taxpayer or the tax authorities may refer the matter to the Abuse of Law Committee (comité de l’abus de droit fiscal), which gives an advisory opinion on whether the matter qualifies as abuse of law.
- The Committee’s opinion does not reverse the burden of proof: if a claim is filed, the tax authorities bear it whatever the opinion given.
- The taxpayer has thirty days from receipt of the tax authorities’ response to their observations to request referral to the Committee.
- The assistance of a tax lawyer is recommended given the stakes and the technical nature of the procedure.
Abuse of law in tax matters is one of the procedures taxpayers fear most. Where the tax authorities consider that an act is a sham, or that it can have had no motive other than avoiding or reducing tax by seeking a literal application of the provisions contrary to the objectives of their authors, they may disregard it as not binding on them (Article L. 64 of the French Tax Procedure Code (Livre des procédures fiscales) (in French)) and tax the taxpayer on the basis of their actual situation (see our tax optimisation lawyer page). The consequences are significant: the tax reassessed is subject to an 80% surcharge, reduced to 40% where it is not established that the taxpayer was the main initiator of the act or its main beneficiary (Article 1729 of the French Tax Code (CGI) (in French)).
The Abuse of Law Committee (comité de l’abus de droit fiscal)
Where the tax authorities invoke abuse of law and the disagreement persists, the taxpayer may ask for the dispute to be submitted to the Abuse of Law Committee for its opinion; the tax authorities may also refer the matter to it themselves. Chaired by a member of the Conseil d’État (conseiller d’État), the Committee includes a judge of the French Supreme Court (conseiller à la Cour de cassation), a senior judge of the French Court of Audit (conseiller maître à la Cour des comptes), a lawyer (avocat) with expertise in tax law, a notary, a chartered accountant and a university professor (Article 1653 C of the CGI (in French)). It gives an advisory opinion on whether the transaction amounts to abuse of law, and its opinions are the subject of a public annual report.
The Committee’s opinion does not reverse the burden of proof. Where the Committee has been consulted, the tax authorities bear the burden of proof if a claim (réclamation) is filed, whatever the opinion given (Article L. 192 of the Tax Procedure Code (in French)).
How to request a referral to the Committee
The taxpayer has thirty days from receipt of the tax authorities’ response to their observations on the proposed tax reassessment (proposition de rectification) to request that the dispute be submitted to the Committee (Article R*64-2 of the Tax Procedure Code (in French)). Once this period has expired, they lose the possibility of requesting the referral themselves for the reassessments concerned.
Preparing the case
The hearing before the Committee is an opportunity to present the economic and legal arguments that justify the disputed transaction. The case must show that the act is not a sham and that it had motives other than avoiding or reducing tax, consistent with the objectives of the provisions applied.
The assistance of a tax lawyer is particularly recommended in this procedure, as the stakes are high (80% or 40% surcharge) and the procedure is highly technical.
For assistance, see our dedicated pages on the tax lawyer and the tax audit lawyer.
