Tax litigation in France: overview
A Q&A guide to civil and criminal tax litigation in France.
This Q&A provides a high level overview of the key practical issues in civil and criminal tax litigation, including: pre-court/pre-tribunal process, trial process, documentary evidence, witness evidence, expert evidence, closing the case in civil and criminal trials, decision, judgment or order, costs, appeals, and recent developments and proposals for reform.
To compare answers across multiple jurisdictions, visit the Tax Litigation: Country Q&A tool.
The Q&A is part of the global guide to tax litigation. For a full list of jurisdictional Q&As visit www.practicallaw.com/taxlitigation-guide.
Overview of tax litigation
Issues subject to tax litigation
France is experiencing an increase in tax audits and litigation as a result of the government's need to fill the budgetary deficit, and political pressure on alleged tax evasion by individuals and large corporations.
Special attention is given to cross-border transactions, which can be seen as a means of tax avoidance. Tax litigation is often the result of disputes over the following issues:
Treatment of intangibles.
Existence of a permanent establishment.
Tax authorities often challenge residency, eligibility for favourable tax regimes, substance of entities and value added tax.
Regarding tax procedure, major areas of focus are documentary discovery, the sharing of information between international tax authorities and the legality of certain acts carried out by the tax authorities.
The number of tax crime complaints filled annually by the French tax authorities is rather low (about 1,000 only). This may change in the near future as French governmental authorities regularly emphasise the need to combat tax fraud and tax crime.
Under the French Constitution Act of 1958, the French Parliament has exclusive jurisdiction to raise money through any mode or system of taxation.
The legal framework for tax litigation in France is set out in the General Tax Code (Code général des impôts) and the Book of Tax Procedures (Livre des procedures fiscales), both of which codify and amend legislative and regulatory laws on taxation.
There are supplementary codes that also apply to tax litigation. Most often, these codes address court process and procedure, including the:
Code of Administrative Justice.
Code of Civil Procedure.
Civil tax litigation
French laws and regulations comply with international tax treaties signed by France and the EU. France operates under a civil law system, meaning that the rules and principles pertaining to tax litigation are codified in legislation. Tax legislation is a primary source of law.
Government regulations (in the form of decrees or orders) are also a source of law. However, they can be challenged by taxpayers on the ground that they breach the legal order.
Court decisions, especially from the Supreme Courts, are a very important source of rules and principles in tax matters.
Despite their practical importance, guidelines published by the tax authorities are not a source of law in France, and are not binding on taxpayers. However, they can be binding on tax authorities if certain conditions are met.
Criminal tax litigation
There is no a specific legislation governing criminal tax litigation. General criminal law and rules of criminal procedure apply.
Tax evasion and other criminal tax offences
The French Tax Code provides a definition of "criminal offence" in the area of tax. Criminal penalties apply to persons who have fraudulently escaped or tried to escape the total or partial establishment or payment of taxes laid down in the Tax Code, by voluntarily omitting to file a return within the time limits provided by the law, by voluntarily concealing taxable amounts, or by any other fraudulent behaviour (section 1741, French Tax Code).
The breadth of the definition of criminal tax behaviour is illustrated by court decisions, which have held that the failure to declare the existence of a permanent establishment or the adoption of an incorrect transfer pricing policy can give rise to criminal penalties.
Assessment, re-assessments and administrative determinations in civil law
The Minister of Economy and Finance is responsible for the administration of tax law and the collection of taxes in France. These responsibilities are carried out by the French Tax Authority (Direction Générale des Finances Publiques) and French Customs (Direction Générale des Douanes et des Droits Indirects), which also has powers in specific areas of tax collection (for example, excises).
France has a self-reporting tax system. Taxpayers must file an annual income tax return, which estimates the amount of tax payable in that taxation year. The French Tax Authority will then assess these returns.
Preliminary audits are generally carried out by the local office that manages the files of both corporate and individual taxpayers.
Secondary corporate audits are carried out by local, regional or national services, depending on the size of the corporation. At the national level, the Directorate of National and International Inspections has a special role with respect to tax control. This body regulates large companies, including the files managed by another national specialised directorate, the Large Enterprise Directorate.
Secondary audits for individuals are generally managed by local tax offices. In the case of extremely wealthy individuals or complex files, the National Directorate of Tax Audits will conduct the secondary audit.
Regardless of the auditor, the National Directorate of Tax Investigations collects the information needed for inspections and helps devise the method of inspection.
From a procedural standpoint, the individual or corporation will first receive a notice of audit.
Notified tax re-assessments are systematically increased by a default interest of 4.8% per annum. Additional surcharges of up to 80% may apply in cases of deliberate failure or fraud, depending on the circumstances and the behaviour of the taxpayer (or 100% if the taxpayer prevents the tax administration from carrying out its control).
Resolving disputes before commencing court proceedings
If a taxpayer wishes to recover an overpayment of tax or the tax authorities observe inadequacies, inaccuracies or omissions in the calculation of taxes, an investigation will be carried out. Where appropriate, an adjustment is made pursuant to a "bilateral adjustment procedure" (procédure de rectification contradictoire) (section L55, Book of Tax Procedures). This procedure offers taxpayers certain guarantees and prevents tax authorities from imposing re-assessments without giving taxpayers the opportunity to respond.
The benefits of this procedure are twofold:
It encourages dialogue between tax authorities and taxpayers.
It encourages tax authorities and taxpayers to settle disputes outside of court.
The Tax Code sets out the rules for appeal within the administrative system and/or review by a special committee. One of these processes must be followed before the dispute can be heard by a court. The rules apply to both tax authorities and taxpayers. Neither party can petition the courts directly without first filing a claim at the administrative level.
Dialogue with tax authorities
The dialogue with tax authorities starts when the taxpayer is sent a notice of proposed adjustment. The notice must:
Give the reasons for the re-assessment in order to allow the taxpayer to give a response.
Indicate any default interest and penalties that the tax office intends to apply.
The taxpayer has 30 days to submit a response. It can partially or fully accept the adjustment. A taxpayer that does not accept the proposed adjustment can challenge it by presenting the relevant facts and legal arguments. Alternatively, the taxpayer can request an additional 30 days to submit a reply. Extensions are automatically granted where the request is submitted on time.
If a taxpayer does not reply within the time limit, it is deemed to have accepted the re-assessment. Acceptance puts an end to the bilateral adjustment procedure, and the tax authorities can proceed to levy the taxation.
Generally, the tax authorities are not subject to a time limit when replying to a taxpayer's response. The exception is when the taxpayer is a small or medium enterprise, in which case the tax authorities have a 60-day time limit. If the taxpayer's response is accepted, tax authorities have no legal obligation to issue a reply. If the taxpayer's response is not accepted, the tax authorities must give reasons, under penalty of nullity.
Once the procedure is complete, a taxpayer can speak with the tax inspector, his or her superior, or the head of the relevant tax office (Interlocuteur fiscal).
Referral to conciliation commissions
If the dispute persists, the taxpayer has 30 days from the receipt of the tax authority's reply to request the opinion of a conciliation commission. The tax authority can also request an opinion.
Depending on whether the taxpayer is an individual or a large business, the request is made to a regional commission or the National Commission on Direct Taxation and Turnover Tax.
These commissions are responsible for issues involving direct taxes or taxation of turnover. However, they only rule on issues of fact. A regional conciliation commission becomes involved when the issue at stake deals with insufficiency in the prices or valuations used to calculate registration duties or wealth tax.
If the commission decides in favour of the taxpayer, the administration can modify its re-assessment, but is not obliged to do so. Where this is the case, taxpayers must seek recourse through litigation.
Another commission can intervene in the specific context of "abuse of law". Tax authorities can reject acts that have a fictitious character or those that, although legal, are inspired by no other reason than to elude or reduce the tax burden (section L64, Book of Tax Procedures). A surcharge of 80% is applied in the case of abuse of law. Given the high surcharge, the rules for using this procedure are strict. The taxpayer will refer the question to the Abuse of Law Committee, which is composed of members of courts and taxpayers' representatives. Under this procedure, the taxpayer presents a written statement and oral responses during the Committee's session. The role of the Abuse of Law Committee is purely advisory, and its opinions are made public on an anonymous basis. Once the Committee has made a recommendation, the tax authority can accept it, or maintain its re-assessment on the basis of abuse of law. However, in the latter case, the tax authority will bear the burden of proof before the court if the matter results in litigation.
Tax claim before going to court
The bilateral adjustment procedure is concluded when the administration sends the assessment notice to the taxpayer. This notice is sent in the following circumstances:
On the taxpayer's acceptance of the proposed adjustments.
On the administration's rejection of the taxpayer's response, where a question was not put to a regional or the national commission.
On notification to the taxpayer of the opinion issued by the regional or national commission.
When the tax authority maintains the adjustments.
Before the matter can be heard in a court of law, the taxpayer must address a claim to the head of the tax office that carried out the re-assessment. The claim must be filed by 31 December of the second year following the year in which the assessment or collection notice was delivered. In addition, it must provide a summary of facts, pleas and arguments. The claim does not exempt the taxpayer from the payment of taxes and penalties imposed. Rather, the taxpayer can request a deferment of payment, which is generally granted by tax authorities in exchange for the provision of a guarantee (for example, mortgage, pledge and so on). The matter remains unresolved until the issue of a court decision on the dispute. If the court rules in favour of the tax authority, the taxpayer must pay interest at the rate of 0.4% per month in addition to the sum claimed by the tax authorities.
Where a taxpayer files a claim with the head of the tax office that carried out the assessment, the tax authority must reply to the claim within six months. A failure to reply within this time period constitutes an implicit rejection of the claim.
If the taxpayer's claim is rejected, it can bring the action to a court of law, regardless of the reasons for rejection.
Elements of the offence in criminal law
Criminal tax offences cover acts of intentionally escaping the establishment or the payment of tax, such as:
Failure to file a tax return.
Concealment of taxable amount.
Even if the burden of proof rests on the prosecution, the defence of the taxpayer will try to prove that:
The administration has made a mistake.
The taxpayer had no intention to escape taxation.
A difficulty for the defence is that criminal court judges are not specialised in tax law. Additionally, in practice, judges easily consider that taxpayers had the intention to commit tax fraud.
Format of the hearing/trial
Role of the judge/arbitrator/tribunal members
Civil tax litigation
France does not have specialised tax courts. Tax litigation takes place before ordinary courts. Tax litigation is conducted through a written procedure, which emphasises the role of judges in the administration of the case. Additionally, tax cases are not decided in jury trials, but bench trials.
There are two types of court that are competent to hear tax issues. This duality of jurisdiction dates back to the French Revolution. Depending on the nature of the tax, litigation will proceed in the following courts:
Administrative courts, which hear disputes on direct taxes, such as income tax, corporate income tax, VAT and local taxes.
Civil courts, which hear disputes on:
registration duties, inheritance and gift tax, wealth tax and certain indirect taxes; and
criminal tax issues, regardless of the nature of the tax.
There are three levels of jurisdiction, as follows:
Administrative courts: administrative courts (first instance), administrative courts of appeal and Administrative Supreme Court (Conseil d'État).
Civil courts: courts of first instance, courts of appeal and Civil Supreme Court (Cour de cassation).
Both Supreme Courts only rule on points of law, and not on factual determinations.
Any person that is involved in legal proceedings before a court can argue that a legislative provision infringes their rights and freedoms guaranteed by the French Constitution. Therefore, taxpayers can challenge the constitutionality of a tax provision used by tax authorities in their adjustments. This is done through an application for a "priority preliminary ruling", which was introduced by the constitutional reform of 23 July 2008. Prior to this reform, it was impossible to challenge the constitutionality of a statute which had come into force. This right is now guaranteed by section 61-1 of the Constitution. Once the conditions of admissibility have been complied with, the Constitutional Council (Conseil Constitutionnel), to which the application will have been referred by the Administrative or Civil Supreme Court, gives its ruling. The Council can repeal the challenged statutory provision.
Criminal tax litigation
See above, Civil tax litigation.
Commencement of proceedings: civil law
The taxpayer must submit a statement of claim which presents the legal and factual arguments supporting the assertion that it should be exonerated from the taxes in question.
This statement must be submitted within two months of receiving the tax authorities' rejection of the claim filed by the taxpayer. A four-month time limit applies for non-resident taxpayers.
The tax authority will submit a statement in reply to the taxpayer's statement within the time allocated by the court (generally two months).
In practice, tax authorities often take longer to reply to statements filed by taxpayers. The courts can compel them to issue a response, but this is rare in practice.
Commencement of proceedings: criminal law
Where the elements of a criminal tax offence are present, the tax authorities can bring a taxpayer before a criminal court.
Where the tax authority seeks to file a tax crime complaint, it requires the favourable opinion of the Tax Offence Commission (Commission des Infractions Fiscales). The Commission is an independent body composed of judges from the Administrative Supreme Court, the Civil Supreme Court, the Court of Auditors and qualified persons.
The taxpayer is informed by the tax administration when it brings the case to this Commission, unless the tax authority foresees a risk that the accused may act to impede the criminal prosecution (for example, tax evasion through seeking refuge in unco-operative territories).
The procedure before the Tax Offence Commission is written, and taxpayers have no access to statements of tax authorities. However, the taxpayer can send observations to the Commission.
The tax authority will file a criminal complaint, which is transmitted to the public prosecutor. The prosecutor's role is to supervise the criminal investigation. The prosecutor has discretion to close the case or prosecute. The prosecution will consider the case, decide which charges to apply and what direction to give to the case. Where the prosecution decides to advance a case, the taxpayer is referred to the correctional court (Tribunal Correctionnel).
In the case of criminal proceedings, tax authorities will also file a civil action in order to:
Comply with procedural rules.
Provide the courts with all the relevant information.
Currently, only the tax authorities can file a tax crime complaint. Proposals that judges be permitted to file tax crime complaints are being discussed by the legislator.
There have been no recent changes to the court procedure. The more recent changes date from 2010, when the French Parliament introduced the possibility to challenge the constitutionality of a tax law in courts (see Question 9).
Over the past few years, a series of legislative and administrative measures have increased the powers of the French tax authorities and reinforced its tools to combat tax fraud and tax evasion. These expanded tools aim to detect significant tax offences, although they apply to many types of tax evasion.
The enhancement of the French tax authorities' powers mainly consist in:
The creation of a "tax police".
A procedure for dealing with "flagrant tax abuse".
Officers in the tax police unit have the same authority as French police officers, and can conduct searches related to tax fraud or evasion. The tax police can supply information to the police and the tax authorities.
Burden of proof
During a tax audit, the burden of proof generally lies with the tax authorities. However, there are exceptions (for example, with respect to international operations).
In tax litigation, there is no general rule regarding the burden of proof. The burden generally lies with both parties. French courts often apply the actori incumbit probatio principle, under which the burden of proof is not allocated to a particular party in advance of litigation. Rather, each litigant must supply the court with facts and evidence to support its position. The court then decides which party will bear the burden of proof according to the facts revealed.
The principle can be illustrated by its application in the context of the abuse of law doctrine, which prohibits operations that appear to be in due form, but actually have the sole purpose of avoiding tax (section L64, French Procedure Tax Code). When tax authorities use the abuse of law procedure, both of the litigants (tax authority and taxpayer) can submit their case to the Abuse of Law Committee. If the Committee finds that the tax authority is right, the taxpayer has the burden of proving that its operation had more than a tax purpose. If the case is not submitted to the Committee, or if the Committee decides that the taxpayer has not committed any fraud, the tax authority bears the burden of proof.
In accordance with the principle of presumption of innocence, the burden of proof in criminal cases is on the claimant (usually the public prosecutor). The public prosecutor must produce evidence that the tax offence has been committed and that the person being prosecuted was involved. Acceptance of a tax re-assessment does not constitute proof of a criminal tax offence. The evidence in support of finding an offence is often provided by the tax authorities.
The main stages of a civil trial are as follows:
The taxpayer sends an application initiating the proceedings.
The tax administration responds by a statement of defence.
The taxpayer normally replies to the tax administration (although it is not an obligation).
The judge schedules the hearing.
The hearing takes place and the judge indicates when he will render his judgment.
The judgment is notified to all parties
The prosecutor supervises the criminal investigation. The taxpayer is referred to a correction court if the prosecutor considers that he has committed an offence. The taxpayer has access to the file for the preparation of his case.
The hearing takes between one day and two weeks. The judges deliver their judgment a few weeks or months later.
Disclosure of documents in civil proceedings
There is no specific rule or obligation governing which documents the parties must disclose to each other and/or the court. The parties normally have possession of all documents before trial.
However, the tax authorities must provide taxpayers with documents they obtained from foreign tax authorities.
Tax disputes are mainly resolved through a written procedure. However, civil courts place some weight on oral procedure. The parties can present various forms of evidence to substantiate their position, although documentary evidence is preferred. As a general rule, evidence introduced by the parties in court must be consistent with the written procedure.
To be admissible, documents must meet standards that ensure that they were not prepared solely as a means of defence, and that they are a fair reflection of the truth. Additionally, the interests of a third party bringing forward a document must not be aligned with the interests of a party to the litigation. Finally, documents must be specific to the taxpayer. General reports can provide useful information but have no evidentiary authority. Courts have ruled that a study prepared by tax authorities on average margin rates in a specific industry cannot be considered as evidence.
In France, documentary evidence is not subject to any form of authentication. In some cases, photocopies can be sufficient. Written documents in a language other than French are not admissible as evidence, unless an official translation in French is provided.
Disclosure in criminal proceedings
French criminal proceedings are mainly inquisitorial. However, they also include adversarial elements in order to reach a balance between the rights of the victim (tax authority), those of the defence (taxpayer) and those of society as a whole.
The main principles that govern criminal proceedings are defined in the introduction of the Code of Criminal Procedure and include:
Equitable and adversarial proceedings.
Information and guarantee of the victims' rights.
The presumption of innocence.
The protection of the rights of the defence.
With respect to disclosure, the defendant taxpayer is entitled to receive notice of elements that have been gathered by the prosecution to prove the intentionality of tax evasion.
Oral testimony is generally not admitted in tax litigation, as the proceedings are written. The French Book of Tax Procedures allows for a limited number of exceptions to the prohibition of oral witnesses in specific circumstances. For example, oral testimony is permitted in the following cases:
To challenge notices drawn up by indirect tax officers.
In the context of public sales.
With respect to liability for real estate tax purposes.
Both parties can put forward testimonials in the form of written affidavits, provided that they satisfy the usual requirements for documentary evidence.
Under French criminal law, judges can determine the value of the evidence submitted in each case. Subject to procedural rules, all types of evidence, whether written, oral, incriminatory, scientific or expert, is admissible, provided that it has been collected and produced in compliance with the French Code of Criminal Procedure.
When a witness testifies during the hearing, the judge starts the examination. The defence can then ask questions to the witness, and the prosecution can undertake cross-examination.
Hearsay evidence in civil and criminal trials
Expert reports in civil trials
Expert reports are admissible as evidence in tax litigation. However, they are only admissible to assist the trier of fact in determining a factual matter in issue. Legal issues must be decided by the court and cannot be submitted to an expert.
Before an expert report is admissible, the expert must guarantee that there has been no collusion of interest with one of the parties to the proceeding. Additionally, the opposing party must be notified of the expert report and can challenge it.
Expert evidence in civil trials
Expert evidence can be obtained in various ways. The court can appoint an expert, regardless of the parties' opposition. Alternatively, the parties can file a written application with the court to request the appointment of an expert. The application must set out the issues to be reviewed by the expert, and can be refused by the court. If a single expert is called, the choice of the expert will be made by the president of the court.
From a procedural standpoint, the court will stay the proceeding and render a preliminary ruling in which it will set out the assignment of the expert. The expert draws up a report to be submitted to the court. The parties are also notified of the report.
Expert evidence in criminal trials
There are no varying degrees of evidence under French criminal law. Judges can determine the value of the evidence submitted in each case. Subject to procedural rules, all types of evidence, whether written, oral, incriminatory, scientific, or expert, is admissible, provided that it has been collected and produced in compliance with the French Code of Criminal Procedure.
See above, Expert evidence.
Closing the case in civil trials
The closing arguments in the French courts consist mainly of an exchange of written statements between the taxpayer and the tax authorities.
Generally, no more than two statements from each side are exchanged. However, there is no legal rule that dictates the number of statements that can be made.
Following exchanges of statements, the court announces the close of the submission period and schedules a hearing.
Closing the case in criminal trials
In criminal proceedings, it is customary for the parties to give oral closing arguments at the end of the trial. Oral closing arguments are advantageous compared with written arguments, as they allow for further clarification of contentious issues (for example, the intentionality of tax evasion).
The standard for a criminal conviction is that the judge must be convinced of the culpability of the taxpayer. Any doubt must benefit the defendant.
Decision, judgment or order
Civil law cases
French law does not set a deadline for the delivery of administrative or civil tax court judgments.
Tax rulings are generally carefully drafted and extremely concise. The court's decision usually identifies the interested parties, the relevant facts and includes a summary of each of the parties' arguments. The decision determines the matters that the court must decide, and discusses the merits of the arguments before reaching a conclusion and giving reasons for the ruling.
The court's decision is deemed to be shared by all the judges of the court. It is not signed by, nor attributed to, a single judge, and no dissenting opinion is expressed. Additionally, the decision does not mention precedents set by higher courts.
Decisions of both the Administrative Supreme Court (Conseil d'État) and the Civil Supreme Court (Cour de Cassation), along with some decisions rendered by lower courts, are available to the public online, free of charge.
Criminal law cases
The legal fees and disbursements incurred prior to court proceedings cannot be recovered within the framework of the pre-litigation procedure. However, if the authorities withdraw their re-assessment after the taxpayer submits its response or following a claim, the taxpayer can make a request to a judge for compensation for the costs incurred.
In a court action, the losing party can be ordered to pay the successful party a sum intended to cover "irrecoverable" costs (for example, a portion of lawyers' fees). Requests for the reimbursement of these costs must be clearly stated and must be supported by evidence (such as invoices or statements of fees) (section 700, Code of Civil Procedure (for claims in the civil courts); section L761-1, Code of Administrative Justice (for claims in the administrative courts)).
Other costs, such as experts' costs, can also be reimbursed (section 695, Code of Civil Procedure; section R761-1, Code of Administrative Justice).
A taxpayer whose action is unsuccessful can theoretically be ordered to compensate the Treasury for its legal costs, but this rarely occurs in practice.
Regardless of which party brings the action, costs incurred are almost never refunded in full. Compensation rarely exceeds a few thousand euros.
Although tax authorities often file a civil action in conjunction with a criminal proceeding, they are generally not awarded compensation.
Right to appeal in civil law
Procedure to appeal in civil law
To appeal a lower court decision, the appellant must file a written statement of appeal with the registry of the relevant court of appeal within either:
One month of the judgment, in civil tax litigation.
Two months of the judgment, in administrative tax litigation.
These deadlines are extended for non-resident taxpayers.
The statement of appeal cannot be a mere copy of statements filed before lower courts. Instead, the appellant must present arguments against the lower court's decision. Issues that were not challenged before the lower court can usually be presented in the statement of appeal.
Following the court of appeal decision, a dissatisfied party can bring an appeal to the third level of jurisdiction (that is, to the Civil Supreme Court or the Administrative Supreme Court).
Right to appeal in criminal law
Procedure to appeal in criminal law
Recent civil law developments and proposals for reform
Recent criminal law developments and proposals for reform
There are important tax criminal (and potentially exemplary) cases pending as a result of the action of tax authorities in this field. These cases involve the following two main issues:
Taxpayers with undisclosed foreign bank accounts, mostly in Switzerland.
Foreign companies that have an activity in France without paying tax (permanent establishment issue).
Description. This official website provides access to French legislation and case law.
Nicolas Jacquot, Partner
Professional qualifications. France, Lawyer
Areas of practice. Tax law.
Non-professional qualifications. École des Hautes Études Commerciales (HEC); Institut d'Études Politiques (IEP); École Nationale d'Administration (ENA)
Languages. French, English
Professional associations/memberships. Institute of Tax Counsel (IACF).
Publications. Articles on taxation published in specialised journals.
Paul Mispelon, Associate
Professional qualifications. France, Associate
Areas of practice. Tax litigation.
Non-professional qualifications. PhD student, University of Panthéon-Sorbonne; Certificate of Lawyer's Professional Skill
Languages. French, English
Publications. Articles on taxation published in specialised journals.