Tax regularisation (régularisation fiscale) is the process by which a taxpayer spontaneously corrects an irregular situation with the tax authorities. It may concern omissions in tax returns, undeclared income, unreported accounts or assets abroad, or repeated errors in annual returns. The decision to regularise should not be taken lightly: it requires a prior analysis of the situation, an assessment of the amounts at stake and a strategy defined with a tax lawyer.
When should you regularise your French tax situation?
Regularisation is relevant when an irregular situation has been identified and the risk of discovery by the tax authorities is real. This risk has increased considerably with the automatic exchange of information between tax authorities, organised within the European Union by Council Directive 2014/107/EU of 9 December 2014. Many countries now automatically send the tax authorities of taxpayers’ countries of residence information on bank accounts held in their territory.
The most frequent situations include: undeclared bank accounts abroad, even though Article 1649 A of the French Tax Code (code général des impôts, CGI) (in French) requires them to be declared each year with the income tax return; foreign-source income not reported in French returns (dividends, rents, capital gains); foreign structures (companies, trusts, foundations) whose ownership has not been reported; inheritances or gifts in which assets were undervalued.
Why spontaneous regularisation is preferable
A spontaneous regularisation, meaning one initiated by the taxpayer before any audit or request for information from the tax authorities, can be prepared under better conditions than a forced regularisation. Where the error was made in good faith, spontaneously filing an amended return together with payment of the tax due reduces the late-payment interest by 50% (Article 1727, V of the CGI (in French)). In the absence of good faith, no provision grants an automatic reduction: the consequences are assessed case by case. A spontaneous and complete approach also makes it easier to assess the criminal risk.
How to regularise: the steps
A well-conducted regularisation involves several steps. A full analysis of the situation: identify all the years concerned and all the undeclared assets or income, and calculate the amounts at stake. Preparation of the amended returns: for each year and each tax concerned (income tax, real estate wealth tax (impôt sur la fortune immobilière, IFI) where applicable, inheritance or gift duties where relevant). Calculation of the sums due: principal taxes, late-payment interest and the penalties that apply depending on the nature of the situation. Filing of the returns and payment of the sums due, while organising the dialogue with the tax authorities.
A regularisation needs preparation: choice of approach, calculation of late-payment interest, drafting of the amended returns. Our tax lawyer in Paris page explains how the firm assists you, before any tax audit as well as during one.
Precautions to take before contacting the tax authorities
Before any contact with the tax authorities, you must have a complete and precise view of the situation to be regularised. A partial regularisation, which leaves out certain items or certain years, can make the situation worse rather than better. Likewise, an inaccurate or incomplete return filed as part of a regularisation can be used against the taxpayer in the event of an audit or prosecution.
Involving a tax lawyer from the very first stages of your thinking is essential to assess the risks, define the strategy and organise the process under sound conditions.
For assistance with your situation, see our dedicated pages: our voluntary tax disclosure lawyer and our tax audit lawyer.
