Transcript Tax fraud

TAX EVASION –
INDIVIDUALS
Rennes Law School
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INTRODUCTION
 Tax fraud: a breach of tax rules in order to avoid taxation.
 Customary in Latin countries
 The economic crisis context led to an increase due to budgetary
restrictions.
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I- TAX EVASION
PENALTIES
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A – PENALTIES FOR FAILURES TO
DECLARE ASSETS
Penalties-General rules:
• Obligation for taxpayers to declare assets;
• Penalties for failure to declare:
• 40% of the evaded tax amount;
• 80% in case of unreported activities.
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A – PENALTIES FOR FAILURES TO
DECLARE ASSETS
 Criminal penalties:
• Only applied after examination of the case by the Tax Infrigement
Commission (“Bercy safety lock”);
• Criminal courts may impose monetary penalties of up to €500,000 along
with a maximum prison sentence of 5 years.
• Aggravating factors:
• shell company arrangements;
• unreported foreign accounts.
Criminal penalties are rarely applied;
the “Bercy safety lock” is used for
purposes of setting public examples.
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A – PENALTIES FOR FAILURES TO
DECLARE ASSETS
 Voluntary disclosure procedure:
• This procedure is available only if taxpayers voluntary come forward and
admit to having committed a fraud.
 If a tax assessment reveals a fraud, a taxpayer may no longer claim the
benefit of the regularization procedure.
• Distinction between active tax evaders and passive tax evaders:
• Both active and passive tax evaders have to pay the income and
wealth tax they should have paid (over the last 6 years) but
penalties vary:
• Active tax evaders are subject to a 30% penalty (the evaded tax amount);
• Passive tax evaders are subject to a 10% penalty (the evaded tax amount).
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A – PENALTIES FOR FAILURES TO
DECLARE ASSETS
 The voluntary disclosure commission
• The taxpayers have to :
• Provide the commission with amended returns properly
reporting the previously undisclosed foreign assets along
with documents proving the existence of the assets;
• Compute and pay the amount the taxpayer owes.
 The tax authorities were able to recover €1.9 billion in 2014 and
it is estimated that this amount should amount to €2 billion in
2015.
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B- PENALTIES FOR ABUSE OF
PROCESS
 Application of the abuse of process rule:
• Penalizes tax schemes set up by individuals.
• Punishes artificial arrangements:
─ set up exclusively for tax purposes;
and
─ which are contrary to Parliament’s intent.
• Broadly defined  encompasses a great number of tax schemes.
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B- PENALTIES FOR ABUSE OF
PROCESS
 How to avoid being subject to the abuse of process rule:
• Asking the French tax administration whether the transaction
constitutes an abuse of process (the French equivalent of Revenue
Ruling in the US);
• No response of the tax authorities within a 6-month period.
• Request :
─ made to the tax authorities;
─ in writing;
─ prior to entering the contract;
─ along with any document the tax authorities might request.
• The tax authorities’ decision is only applicable:
─ to the taxpayer who made the request;
─ following the abuse of process principle.
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B- PENALTIES FOR ABUSE OF
PROCESS
Two types of abuse of process:
• By simulation/ reliance on a fiction: scheme which does not
reflect an economic reality.
• By fraudulent evasion of the law: legal scheme but does not
comply with the spirit of the law.
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B- PENALTIES FOR ABUSE OF
PROCESS
Characteristics of the procedure:
• The authorities or the taxpayer may take their case to a
committee, known as the Abuse of Process Committee.
• The tax authorities are not required to follow the Committee’s
findings.
• However, the taxpayer bears the burden of proof should the
Committee give an adverse opinion.
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I- Tax evasion
penalties
B- PENALTIES
FOR ABUSE
OF
B- Penalties
for abuse of process
PROCESS
Sanctions:
• 80% increase in evaded duties to be repaid.
• 40% when the taxpayer proves he/she neither set up nor
directly benefited from the tax scheme.
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II. PREVENTING
INDIVIDUAL TAX
EVASION
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A- GENERAL ANTI-TAX FRAUD MEASURES
 Tax audits can only be efficient if they are based on relevant
information.
 The aim is to detect fraud mechanisms, to collect and to
centralize information in order to initiate audits;
 Several provisions:
• The obligation to declare capital transfers;
• The obligation to declare accounts opened
or used outside of France;
• The prohibition to settle certain debts in
cash;
• The use of “data mining”;
• The impact of TRACFIN.
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A- GENERAL ANTI-TAX FRAUD MEASURES
 Registration of fund transfers:
 Taxpayers must declare any transfer out of France exceeding €10,000 with Customs;
 In the absence of such a declaration, the funds so transferred are considered income.
 Registration of opened, used or closed foreign accounts:
 Individuals and some entities established in France have to register their foreign
accounts;
 Failure to do so is subject to penalties.
 Prohibition of cash payments of certain debts:
 Cash wages above €1,500 are forbidden (penalty limited to 5% of the amount paid);
 There is a prohibition on cash payments depending on the location of the debtor or
his/her activity (whether the debtor carries a professional activity or not).
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A- GENERAL ANTI-TAX FRAUD MEASURES
 The French “data mining” experiment:
 Tax authorities are allowed, by the CNIL (French Data Protection Agency), to engage in
the processing of personal data;
 This data analysis permits to analyse a large amount of separate data to obtain fraudster
profiles;
 The proposed processing seeks in particular to prevent, investigate, detect and prosecute
criminal offenses;
 The processing is not meant to contain lists of names of persons to be monitored but is
used exclusively for fraudulent behavior modeling.
=> Data mining could be an efficient tool for
preventing tax evasion and social security
fraud.
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A- GENERAL ANTI-TAX FRAUD MEASURES
 The prevention of tax evasion by TRACFIN:
 TRACFIN is a centralized system for financial intelligence. Its role is to collect data
communicated on a compulsory, optional or voluntary basis;
 TRACFIN passes on the information to the tax authorities so it can be used for the
purpose of tax investigations or criminal prosecution;
 TRACFIN passes on the information to the district attorney when the activities revealed
are:
•
•
punishable by more than one year of imprisonment; or
In connection with terrorist financing.
=> To conclude, we have to underline that a cooperation between States is needed for the
collection of information be efficient.
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B - SPECIAL TAX FRAUD PREVENTION
MEASURES
1. The right of communication
 The action can only be efficient if it is based on sound information.
 It is necessary to perform a critical analysis of tax returns, using all the
information, supporting documents and, if necessary, complementary
information requested from the taxpayer or collected from third parties
(customers, suppliers, administrations) pursuant to the right of communication.
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B - SPECIAL TAX FRAUD PREVENTION
MEASURES
 The right of communication is an information-gathering tool (the use of which is
strongly limited by the French legislation). It allows the collection of companies’ or
administrations’ data and accounting records from companies, administrations.
 Thanks to its wide scope, it is a particularly efficient tool :
 May target amounts paid to third parties;
 The judicial authority has to communicate to the tax authorities every piece of
information indicating an alleged tax fraud;
 Can be used with various persons or entities (such as banks).
 The only limit : doctor-patient confidentiality or attorney-client privilege.
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B - SPECIAL TAX FRAUD PREVENTION
MEASURES
2. Home visits by the tax authorities
 Since 1984, the French tax authorities have been allowed to carry out home visits.
 Visits may take place between 6 a.m. and 9 p.m. and only on the premises authorized
by the judge and in the presence of the occupant of the premises.
 The authorities may seize any document found on the premises, regardless of the
place of storage, as soon as they are obtainable from the company.
 Moreover, documents cannot be set aside
on the sole ground that their origin could
be of an illicit nature, as long as they are
legally conveyed to the tax authorities.
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B - SPECIAL TAX FRAUD PREVENTION
MEASURES
3. Searches by the tax authorities
(search of a person’s home under public prosecutor supervision)
In 2013, around 35 searches took place.
Suspects may be held in tax police custody and subjected to questioning.
The preliminary investigation, which is initiated either by the police or the public prosecutor’s
office, may concern all types of offences.
Tax searches, visiting a person’s home and seizing documents for use as evidence, cannot take
place without the taxpayer’s express agreement.
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B - SPECIAL TAX FRAUD PREVENTION
MEASURES
4. The Blatant fraud
Introduced in France in 2008 for serious cases of manifest or obvious fraud,
such as false invoicing.
It is a serious breach of human rights and freedoms, it can only be implemented
in limited cases set out in the law:
o Only very rarely;
o Only against business activities because of the risk that the tax
authorities may not be able to recover unpaid taxes if they do not take
immediate action (e.g. receiverships).
Around 240 Flagrant Tax Fraud cases are recorded every year in France, raising
hundreds of millions of Euros in penalties.
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B - SPECIAL TAX FRAUD PREVENTION
MEASURES
5. Tax investigation police
Established in 2010 in order to enhance the tax authorities' capacity to fight against
complex forms of tax evasion.
For the first time, the tax officers with a knowledge of the fundamental principles of tax
law, criminal procedure and investigative tools are working hand-in-hand within one squad
enjoying the same prerogatives.
►The National Squad for the Repression of tax
Crimes, both discrete and dissuasive, provides
effective support in the fight against tax evasion.
►The Tax Investigation Police force can seize
documents, conduct searches, hold suspects in
custody,
conduct
hearings,
use
wiretapping…(investigating tax officers have the
same powers as the criminal police).
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QUESTIONS?
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Thank you for your attention, your
invitation and your warm welcome.
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