It should first be recalled that holding a bank account abroad by a French tax resident is in no way prohibited under current law. However, pursuant to article 1649 A of the French General Tax Code (CGI), a reporting obligation applies to the taxpayer.
The latter must declare to the tax authorities all accounts opened, held, used, or closed outside the national territory. This is done by means of Form No. 3916-3916 bis. In addition, the taxpayer is subject to a regularization obligation.
To this end, he or she must file with the local tax office a regularization dossier indicating the bank accounts held abroad and must be able to justify the origin of the funds placed abroad.
The scope of this provision has furthermore been extended to include life insurance policies taken out abroad (art.1649 AA CGI) as well as certain trust-related arrangements (art. 1649 AB CGI). In the event of failure to comply with the reporting obligation, the taxpayer is liable to a flat fine of 1.500 euros per undeclared account.
The penalty is increased to 10.000 EUR per undeclared account when the account is held in a jurisdiction that has not concluded an agreement with France for the prevention of tax fraud and tax evasion.
With regard to the conditions for calculating the tax due, the general rules relating to the determination of the taxable base are set out in Articles 4 A, 4 B and 12 of the French General Tax Code. The taxable base includes, in particular, income derived from accounts, such as interest and fixed-income investment income (Article 124 CGI), dividends and profit distributions (Article 108 CGI), as well as capital gains on securities (Article 150-0 A CGI).
Finally, administrative tax guidelines (BOI-IR-DOMIC-10-20-20) provide that foreign-source income must be expressed in EUR, taking into account the exchange rate applicable on the date of receipt.
The calculation of tax also involves the application of the progressive income tax scale according to taxable income (Article 197 CGI), as well as social contributions (BOI-RPPM-RCM-20-15). Since 2018, there has also been a flat tax of 30% (prélèvement forfaitaire unique) on most investment income (BOI- RPPM-PFVMI-20-10). In addition, article 1727 CGI establishes the principle of late payment interest in the event of late payment or incomplete declaration, set at 0.20% per month.
Furthermore, article 1729 CGI provides for a surcharge in the event of non- compliance or failure to declare: this amounts to 40% in cases of deliberate non- compliance and 80% in cases of fraudulent conduct or abuse of law. Finally, administrative tax doctrine BOI-CF-INF-10-20-10 sets out the procedures for applying these surcharges.
As regards the calculation of any tax due, the principle of non-double taxation applies. This principle is implemented through agreements concluded between two or more countries in order to resolve issues relating to taxpayers’ cross-border taxation.
It is therefore necessary to verify the existence of a tax treaty between France and the foreign country where the relevant account is located. These bilateral conventions, available in particular on the impots.gouv.fr website, set out the methods for eliminating double taxation.
Two main methods of eliminating double taxation under such treaties are recognized: the tax credit method and the exemption method. In accordance with Article 23 B of the OECD Model Tax Convention, the tax credit method allows the foreign tax paid to be credited against French tax due, within the limit of the latter.
The tax credit thus corresponds to the tax actually paid abroad, capped at the amount of French income tax due on the same income base. The conditions and practical arrangements for this mechanism are specified by administrative doctrine (BOI-IS-RICI-30-10-20-10). Proof of taxation abroad is mandatory (BOI-INT-DG-20-20 § 100 et seq.).
Where the tax credit is equal to the French tax due, it cancels out French income tax liability, but does not exempt the taxpayer from social contributions. The exemption method, on the other hand, consists in exempting in France certain foreign-source income, subject to the conditions laid down in the applicable tax treaty.
The principles of this method are also set out in Article 23 B of the OECD Model Tax Convention, while details of the implementation of double taxation relief are provided by administrative doctrine (BOI-INT- DG-20-20-100).
Finally, a further mechanism deserves mention, namely the additional tax payable in cases where taxation abroad is lower than the taxation that would have applied in France. Three scenarios can be identified.
First, when the tax paid abroad is lower than the amount that would have been due in France, the taxpayer must pay the difference to the French Treasury (article 23 B of the OECD Model Convention). Second, in the absence of any taxation abroad, the taxpayer is fully taxed in France.
This is notably the case when the taxpayer is unable to provide proof of actual payment of foreign tax (BOFiP–BOI-INT- DG-20-20, § 90). Finally, there are particular situations: on the one hand, cases where income is exempt abroad but taxable in France, the treatment of which depends on the terms of the applicable bilateral treaty; on the other hand, cases where income is subject to foreign withholding tax, in which event the taxpayer must provide evidence of the amount actually withheld, by means of a certificate or a statement (BOFiP–BOI-INT- DG-20-20, § 100 et seq.).
Ultimately, the tax regularization of accounts held abroad by a French tax resident cannot be reduced to a mere reporting formality. It falls within a demanding regulatory framework combining reporting obligations, financial penalties, and methods of tax calculation.
The application of international tax treaties, in conjunction with domestic law, plays a decisive role, as it allows either the allocation of a tax credit corresponding to foreign taxation or the exemption of the income concerned. This coordination is intended to prevent the risk of double taxation while ensuring that the French tax authorities can collect the tax owed.
The combination of these various rules reflects the legislator’s and the administration’s intention to guarantee fair taxation of foreign-source income while combating tax fraud and evasion.
Med venlig hilsen / Kind regards
Cabinet Nicolas BRAHIN
Advokatfirma i NICE, Lawyers in NIC
Camilla Nissen MICHELIS
Assistante – Traductrice
1, Rue Louis Gassin – 06300 NICE (FRANCE)
Tel : +33 493 830 876 / Fax : +33 493 181 437
