The proportional fine for failing reporting an account is unconstitutional

July 26th 2016

Article 1736 of the French General Tax Code, in its first subparagraph of paragraph IV, provides that the default in reporting a foreign account is punished with a fine of 1,500 € or 10,000 €, whether the account is opened in a State having entered a convention of administrative assistance with France, or not.

As per the second subparagraph of the same article, this fine is increased to 5% of the amount of the assets when the total credit balance of the foreign non-reported account(s) equals or exceeds 50,000 €.

Pursuant to a request for priority preliminary ruling on constitutionality, the Conseil constitutionnel raised its own motion arguing that the provisions setting a fine proportional to the credit balance of the non-reported bank account disregard the principle of the proportionality of the penalties.

First, the Conseil constitutionnel acknowledges the lawfulness of the sanction for not reporting a foreign bank account, which pursues a goal of constitutional value by fighting against fraud and tax evasion.

However, if the lawmaker is well-founded in repressing the violation of this obligation, he shall not institute an evident disproportion between the violation and the penalty.

Yet, in this particular case, the Conseil constitutionnel notes that the fine is incurred even if the sums credited on the account were not fraudulently sheltered from taxation.

Consequently, “by providing a proportional fine for a simple violation of a reporting obligation, the lawmaker has instituted a sanction which is evidently disproportionate with the seriousness of the facts which it aims at repressing.”

The Conseil constitutionnel therefore concludes that the provisions of the second subparagraph of paragraph IV of Article 1736 of the French General Tax Code are unconstitutional.

The declaration of unconstitutionality applies to the fines imposed pursuant to paragraph IV of Article 1736 of the French General Tax Code, prior to the date of the ruling of the Conseil constitutionnel, and which have not yet led to a definitive judgement or for which a claim may still be filed.

This ruling will of course be of significant consequence for the processing of thousands of requests for regularisation pending with the DNVSF (Direction Nationale de Vérification de Situations Fiscales).

According to our information, the STDR (Service de traitement des déclarations rectificatives) is also assessing the consequences of this ruling on the requests for regularisation that were already settled.

Claire Lachaux