France

Abstract

As in other countries, tax law in France has reached a level of complexity that may impede the ability of the taxpayer to fulfill its fiscal obligations to the government. At the same time the French legislature is increasingly concerned about the loss of revenue resulting from an increase in aggressive tax planning. It has addressed these concerns by providing to the tax administration the means to combat newly discovered tax avoidance schemes. One mechanism is the judicial rule against abuse of law (l’abus de droit) which derives from non-fiscal law, but has been applied increasingly to tax cases. Combining abuse of law with legal fraud (fraude a la loi) principles, the legislature enacted, in 2008, article L64 of the Book of Fiscal Procedures (Le Livre des procedures fiscales) which accords the tax administration the power to determine the tax consequences of a transaction by reconstructing any transaction that constitutes an abuse of law either because the commercial steps taken conceal a hidden arrangement or because it seeks to meet the literal terms of a statute or decision but is motivated solely by a desire to reduce tax. The French GAAR incorporates general principles – not prohibiting any particular action – that must be applied by the tax administration. If tax is redetermined under article L64, a taxpayer is responsible for the additional tax due and may also be liable for an additional penalty that varies from 40 to 80% of the tax due depending on the circumstances. A second way in which the government hopes to foster fiscal responsibility in its corporate taxpayers is by subscribing to the notion of corporate social responsibility (la responsabilité sociale (ou societal) des enterprises).