This section deals with penalties imposed under general tax law. Refer to Sec. 13.4.3. for penalties specific to failure to comply with the transfer pricing documentation requirements.

For Non-Filing and/or Non-Payment

If a taxpayer fails to file a tax return, or files the tax return one month after the statutory due date, late interest at the rate of 0.2% per month (temporarily reduced from 0.4% per month from 1 January 2018 until 31 December 2020) plus a flat penalty equal to 10% of the amount outstanding is due. The aforementioned 0.2 penalty ceases to accrue on either the last day of the month during which the tax return was filed or the last day of the month during which a notice from the tax administration is issued, at which juncture the aforesaid 10% flat penalty is increased to 40% (to 20% in case the return is filed within 30 days from the issue of notice by the tax administration). The flat penalty is increased to 80% in the event the taxpayer is discovered to have been conducting an undeclared business activity.

For Late Returns and/or Late Payment

Failure to pay If the taxpayer fails to pay any tax, he is subject to a late interest penalty of 0.2% (temporarily reduced from 0.4% from 1 January 2018 until 31 December 2020) of the unpaid tax per month. This late interest penalty is normally calculated from the first day of the month following that during which the tax was due until the last day of the month during which payment is made. In addition to the basic late interest penalty, a penalty of 5% is imposed for the late payment of, inter alia, the corporate income tax, the wealth tax, turnover taxes, registration taxes, and the payroll tax paid by employers.

For Inaccurate and /or Incorrect Filing

Where additional tax liability is imposed pursuant to a reassessment procedure, and the additional liability was caused by the fact that the taxpayer provided insufficient, inexact, or incomplete information in its tax return, a tax penalty is due. The amount of the penalty depends on whether the taxpayer acted involuntarily (in good faith), or deliberately (in bad faith), or fraudulently.

Involuntary Under-Reporting

Where the underpayment of tax results from the taxpayer’s failure to declare all its taxable income or the full value of the transactions subject to registration tax, no penalty will be imposed if the amount of the undeclared income does not exceed 5% of the taxable income as re-assessed (with respect to corporate income tax; 10% with respect to registration taxes).

If such express notification is not made or if the taxpayer fails to report more than one-twentieth of its taxable income or one-tenth of the amount a taxable transaction, the resulting underpayment of tax, if not committed deliberately, will only result in the imposition of a late interest at the rate of 0.2% of the unpaid tax per month. The late interest penalty ceases to accrue as of the last day of the month during which the taxpayer receives a notice of reassessment.

Deliberate or Fraudulent Behavior

Where the tax administration establishes that the taxpayer deliberately filed a tax return with insufficient, inexact, or incomplete information, the latter is subject to a late interest penalty at the rate of 0.2% (reduced from 0.4%, effective from 1 January 2018 plus a penalty equal to 80% of the tax due. The same penalty (and late interest) is due where the tax administration establishes that the taxpayer conducted a sham transaction.

Criminal Proceedings

Where the tax administration determines that the taxpayer has intentionally evaded tax, it may initiate a criminal action against the taxpayer (see below) until the end of the sixth year following the year during which the fraud was committed. Conviction for tax fraud may carry a fine of up to EUR 500,000 and imprisonment for up to 5 years (increased to EUR 3 million and imprisonment for up to 7 years in case of aggravated fraud or conspiracy), in addition to the administrative tax penalties. The fine is up to ten times the benefit derived from the fraud if the person prosecuted is a legal entity. Further, a criminal conviction for tax fraud automatically renders the taxpayer ineligible for government contracts and may, in addition, carry other sanctions, such as ineligibility for public offices, inability to vote or engage in certain professions, and the suspension of one’s driver’s license.

The initiation of criminal proceedings in connection with tax violations was entirely at the discretion of the tax authorities (a situation generally referred to as the “Bercy lock”, for the HQ of the ministry of finance/tax administration), subject to the obtention of a green light from the Tax Violations Committee ("Commission des infractions fiscales"). The Anti-Fraud Act adopted in October 2018 substantially modified the procedure and made it mandatory for the tax authorities to refer specified tax violations to the public prosecutor, who henceforth has the authority to pursue or decline to pursue criminal proceedings in the matters referred.

Tax violations required to be referred to the public prosecutor include those involving avoided taxes/duties in excess of EUR 100,000 whereby the tax administration concurrently applied:

100% penalty for obstruction of audit;
80% penalty for undeclared activities, fraudulent practices, abuse of law or non-disclosure of foreign accounts and specified assets; or
40% penalty for deliberate violations, and the taxpayer was issued the 80% or 100% penalties during the preceding six years.

The initiation of criminal proceedings with respect to other tax violations remains the prerogative of the tax administration.

France introduced the hitherto unknown procedure of “plea bargaining” into domestic law, and the procedure has been extended to tax violation proceedings from October 2018

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