Creation of the offence of making available instruments to facilitate tax fraud

Can data processing, human intelligence and a financial measure be considered sufficient to combat fraud and tax evasion and the financial stakes involved?

Apparently not, since the legislature has introduced a new offence of communication [6].

This offence is unprecedented in that it punishes not the acts to which datamining and indemnification of tax advisors apply, but premeditation or, in other words, intent.

In other words, if it wasn’t obvious enough, this is the era of the fight against tax fraud and tax evasion.

It would be tempting not to reproach the legislature, vested with the powers to vote on and control the State budget, for authorising the tax authorities to recover any significant loss of revenue from fraudulent activities or transactions, since the money recovered in application of the legislation is intended to finance public expenditure (health, education, justice, security, etc.).

However, even though it derives directly from the constitutional principle of equality before public burdens, can the laudable desire to combat fraud and tax evasion against all odds be considered as the source of legal and fiscal inconsistencies?

There’s an old adage that says “our freedom ends where someone else’s begins”. Transposed to our context, certain questions of compatibility arise between this text and the practice of the legal profession, in its relationship with its clients.

The text under consideration today is designed to act as a deterrent and to punish intermediaries who may be involved in tax fraud (lawyers, accountants, notaries, estate agents, asset management consultants, etc.). In other words, all legal and tax players cannot ignore this measure and must now participate in the fight against tax fraud.

On 25 February 2021, the OECD published a report entitled “Putting an end to abusive financial arrangements: cracking down on intermediaries who facilitate tax offences and white-collar crime“. The report, whose title is sufficiently evocative, set out the context and definition of tax intermediaries who facilitate tax offences and white-collar crime.

Counter-strategies are formulated by the OECD as recommendations to combat the actions of tax intermediaries: “ensure that the law gives investigators sufficient powers to identify, prosecute and punish tax intermediaries, so as to deter and penalise those who have facilitated tax crime“.

This offence, codified in Article 1744 of the General Tax Code (“CGI” below) and created by the Finance Act for 2024, follows on from this report, which had already highlighted the role of tax intermediaries in the commission of tax fraud.

Far from being unknown to French legislators, tax intermediaries had, as early as 2018, been targeted by Article 1740 A bis of the CGI and a fine of 50% of the revenue derived from the service provided to the taxpayer.

This offence relates to the provision, free of charge or against payment, of one or more legal, fiscal, accounting or financial means, services, acts or instruments with the aim of enabling one or more third parties to fraudulently evade the assessment or payment of all or part of taxes.

In practice, this offence is likely to be characterised regardless of the nature of the relationship between the person making the funds available (who may be an individual or a professional, a natural person or a legal entity) and the third party or parties benefiting from the funds in order to evade tax.

The characterisation of this offence calls for a number of comments:

• While it is necessary for a relationship to be established in order to characterise this offence, the letter of the text makes no reference to a contractual link between the person making the equipment available and the beneficiary or beneficiaries.

• This lack of need for a contractual link between the parties, combined with the notion of “free” provision to which the text refers, suggests that the legislator makes no distinction between the private sphere and consultation, for example, provided free of charge without financial consideration in the context of professional practice.

• No details are given as to how the resources will be deployed, or as to the rules for applying this new system over time. Difficulties could arise with the application of the law over time. Article 1744 of the General Tax Code, amended by the Finance Act for 2024, came into force on 31 December 2023[7]. Consequently, offences committed since 31 December 2023 are punishable on the basis of the provisions of the said law.

In any event, as the offence of making available instruments to facilitate tax fraud was created by the Finance Act for 2024, offences committed before 31 December 2023 are not subject to the new provisions.

These include tax lawyers, legal advisers, accountants, notaries, trustees, etc. In short, all the players likely to be approached by taxpayers to put together tax and financial packages.

In its report on tax intermediaries, the OECD makes a distinction between “tax intermediaries” and “tax specialists”. The former “deliberately and resolutely devise strategies to facilitate the commission of tax offences“. Tax specialists, on the other hand, have no such intentions.

It is this notion of intentions that raises questions here. We’ll come back to this point later.

Article 1744 of the General Tax Code does not define the legal, tax, accounting or financial intermediaries likely to be punished for the offence of making available instruments to facilitate tax fraud. However, the principle of accessibility and intelligibility [8] of the law implies that the latter should be easily understandable.

Consequently, this lack of an official definition of intermediaries can potentially create legal uncertainty. This uncertainty is limited, however, as the aforementioned Article 1744 sets out the areas that fall within its scope, i.e. legal, tax, accounting and financial matters.

In addition, Article 1740 A bis of the General Tax Code provides for an administrative penalty to be imposed on legal, financial or accounting intermediaries. The fine is equal to 50% of the revenue derived from the service provided to the taxpayer, but may not be less than €10,000.

Although this penalty cannot be combined with those provided for in the aforementioned Article 1744, Article 1740 A bis of the CGI implicitly provides a definition of tax intermediaries. Tax intermediaries can be defined as any natural or legal person who, in the course of providing professional tax advice, “intentionally provided” the taxpayer with a service that directly enabled the taxpayer to commit the acts, omissions or manoeuvres subject to the penalty. Thus, when such intermediaries encourage taxpayers to commit serious breaches of their obligations, the penalty set out in Article 1740 A bis of the CGI applies.

Finally, all the taxes listed in the General Tax Code are concerned.

The means, services, acts or instruments referred to in the aforementioned Article 1744 are as follows:

• Opening accounts or taking out contracts with bodies established abroad;

• The interposition of natural or legal persons or comparable bodies, trusts or institutions established abroad;

• Providing a false identity or false documents, or any other falsification;

• Providing or justifying a fictitious or artificial tax domicile abroad;

• Any other manoeuvre designed to mislead the authorities.

These resources raise a number of questions, which have yet to be answered:

• If the first two methods are legal, what procedure used by intermediaries could make them illegal? The tax authorities would like to have a guide to this.

• Doesn’t the provision of false documents, which is already punishable under article 441-1 of the French Criminal Code, lead to multiple penalties?

• With regard to territorial application, what is the definition of ‘foreigner’ in the case of fictitious or artificial tax domiciliation?

Synthetically,

• The tax authorities may report the offence to the public prosecutor, but they do not have a monopoly in this area.

• The Public Prosecutor’s Office may prosecute this offence without prior complaint or following a complaint from the tax authorities without the approval of the Commission des infractions fiscales.

• Only the Public Prosecutor has the burden of proving that the offence was committed intentionally.

While lawyers may be held liable for failure to provide advice or for professional misconduct in the course of their practice, the engagement letter issued by the lawyer serves to determine the scope of their liability. This contractual document sets out the scope of the lawyer’s work and the issues for which he is called upon.

Consequently, the lawyer will have to be even more attentive to the client’s needs, which they will have to determine together in order to secure the tax arrangements envisaged and prevent potential future tax disputes.

As part of their privileged relationship with their clients, which is protected by professional secrecy, tax lawyers must ensure that they are specialists in the field and not intermediaries.

Do you have any questions about the offence of making available tax evasion instruments? Contact the lawyers in our Tax Law Department.

[1] Law no. 2023-1322 of 29 December 2023 on the finances for 2024, article 113.

[2] Citizens’ initiative report drawn up by the Cour des Comptes and published on 15 November 2023, page 11.

[3] Citizens’ initiative report drawn up by the Cour des Comptes and published on 15 November 2023, page 36.

[4] Citizens’ initiative report drawn up by the Cour des Comptes and published on 15 November 2023, page 57.

[5] Law no. 2023-1322 of 29 December 2023 on the finances for 2024, article 123.

[6] Law no. 2023-1322 of 29 December 2023 on the finances for 2024, article 113.

[7] Law no. 2023-1322 of 29 December 2023 on the finances for 2024, article 113.

[8] Objective of constitutional value deriving from articles 4, 5, 6 and 16 of the 1789 Declaration of the Rights of Man and of the Citizen.