Foreign accounts: regularise before it is too late

Holding a bank account abroad is perfectly lawful. However, once a person becomes tax resident in France, holding accounts or assets abroad may give rise to specific reporting obligations that are often overlooked.

The difficulty frequently arises for people who lived abroad for several years before settling in France. It is natural for them to have kept a bank account, a securities account, a life insurance policy or other investments in their former country of residence. These assets may be entirely regular in the State where they are held, yet must now be declared in France.

The same issue affects taxpayers who kept an account after moving abroad, people who regard themselves as not being tax resident in France, and those who opened an account abroad for various reasons, in particular to make investments or because they have a holiday home in the country concerned.

The risk therefore lies less in holding the account itself than in failing to take account of the tax consequences of being resident in France.

1. Perfectly lawful ownership, but subject to reporting obligations in France

What formalities must be completed in France?

Article 1649 A of the French General Tax Code (CGI) requires individuals domiciled in France to declare, together with their income tax return, the details of accounts opened, held, used or closed abroad. This declaration is made in particular on form no. 3916.

The obligation is therefore broader than is sometimes imagined.

A taxpayer may be affected even though they have never sought to conceal their assets, the account has existed for many years, it was simply kept after they settled in France or the amounts involved are insignificant.

Nor does the absence of income received on the account, or its limited use, mean that there is no reporting obligation.

The income generated on these accounts must also be examined

This first obligation may be accompanied by others relating to the income produced by the assets concerned: interest, dividends, capital gains or income from certain investments must be examined in order to determine their tax treatment in France, taking into account, where applicable, the relevant tax treaty.

It is often at this stage that an apparently simple situation becomes more technical. The point is not merely to declare the existence of an account, but to ensure that its entire tax treatment since settling in France is consistent.

2. Waiting for the tax authorities to act can considerably reduce your room for manoeuvre

Penalties that go beyond the fine for failure to declare

Failure to declare a foreign account may result in a fine of 1,500 euros per undeclared account. This rises to 10,000 euros where the account is located in a State or territory that has not concluded an administrative assistance agreement with France giving access to banking information.

Where income relating to the account has not been correctly taxed in France, the consequences may be considerably more serious.

The tax authorities may then reassess the corresponding taxes, together with late-payment interest at the rate of 2.40% per annum and the applicable surcharges.

Article 1729-0 A of the CGI provides in particular for an 80% surcharge on the duties payable where an adjustment results from sums held, now or in the past, in accounts that should have been declared.

The period during which the tax authorities may act is also a key issue.

Whereas the standard time limit for reassessing income tax is 3 years, it may be extended until the end of the 10th year following the year for which the tax is due where the obligations relating to foreign accounts have not been met.

However, where the reporting obligation under the aforementioned Article 1649 A has not been complied with, this extension does not apply if the taxpayer proves that the total credit balances of their foreign accounts did not exceed €50,000 at any time during the year for which the declaration was due. The tax authorities' right of reassessment covers only the income or profits relating to the reporting obligations that were not met.

Furthermore, the limitation period for fines penalising the failure to declare expires at the end of the 4th year following the year in which the offence was committed.

A long-standing omission may therefore continue to expose the taxpayer for many years.

The automatic exchange of information between States greatly reduces the chances of remaining unseen

Above all, it is now risky to assume that an account held abroad will remain unknown to the French tax authorities.

International information exchange mechanisms give the tax authorities access to information transmitted by many foreign financial institutions.

It sometimes happens that the taxpayer first becomes aware of the issue on receiving a request for information concerning an account held abroad for several years.

At that stage, the taxpayer no longer truly chooses the timetable for regularisation: they must respond within the framework set by the tax authorities.

3. Voluntary regularisation allows you to regain control of your tax position

Reconstructing the financial flows before making a declaration

Where an undeclared foreign account is identified before the tax authorities take any action, voluntary regularisation allows the taxpayer, by contrast, to retain the initiative.

The first step is to determine precisely the years concerned and the reporting obligations that should have been met.

It is then necessary to examine the movements on the accounts, identify any income received and determine its tax treatment under French law and, where relevant, international tax treaties.

It must also be possible to explain and document the origin of the funds.

This analysis is decisive where the sums derive, for example, from a professional activity carried on before settling in France, an inheritance, a gift, the sale of an asset or savings built up during a period of residence abroad.

The older the transactions, the more difficult it may be to reconstruct them: bank statements no longer available, a change of institution, successive transfers between accounts, investments that have matured or documents held in several countries.

A regularisation prepared in advance makes it possible precisely to gather this information before approaching the tax authorities.

Depending on the situation, several amended returns and forms relating to foreign accounts may be required. It may also be essential to recalculate the income concerned, analyse foreign tax credits and verify the application of international tax treaties.

A well-prepared regularisation keeps you in control of your tax affairs

The involvement of a tax lawyer is not limited to filing a late return.

It aims to determine the actual tax exposure, identify the years still open to audit and present the tax authorities with a legally consistent and well-documented position. It also seeks to secure the non-application of the fines incurred had the tax authorities discovered the failure themselves.

Waiting for a letter from the tax authorities often means carrying out this same work in a far more constrained framework, with the added burden of late-payment interest, surcharges and substantial exchanges with the tax authorities.

Conversely, early regularisation makes it possible to approach the matter with a clear view of the risks and to define the most appropriate strategy before an audit is initiated.

The firm supports taxpayers holding accounts, investments or assets abroad at every stage of this process: analysis of the reporting obligations, determination of the years concerned, reconstruction of the flows, application of international tax treaties, preparation of amended returns and assistance in exchanges with the tax authorities.

The aim is to turn an uncertain tax situation into a controlled, documented and legally defensible file, while identifying the levers that make it possible to reduce tax lawfully, avoid unnecessary penalties and, wherever possible, achieve substantial savings for our clients.

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