France: The National Assembly Proposes Picking Bercy's Lock

Last Updated: 13 September 2018
Article by Philippe Lorentz and Jean-Baptiste Boué-Diacquenod
Most Read Contributor in France, October 2018

Set up after the parliamentary debates on the Act for Confidence in Political Life, the information commission on prosecution of tax offences provided its report 1 last May 23.After several hearings of the tax authorities, the judiciary and lawyers from civil society, the members of parliament recommend eliminating the "Bercy lock" by "giving the keys" to the public prosecutor, and they propose several changes in the criminal justice system for tax matters.Focus on this report's proposals.

Instituted in 1920 when the general misdemeanor of tax fraud was created 2, the "Bercy lock" procedure was then part of the tax authorities' monopoly over criminal prosecution.However, to limit the risk of abusive complaints by the tax authorities, the admissibility of these complaints were subsequently subject to a favorable opinion by the commission on tax offences ("CIF"), created in 1977 3.The initial monopoly, therefore, had a second "lock" 4.

Since then, the tax authorities' complaint occurs after three steps:

  1. An administrative selection of cases after a completed tax audit or in case of established presumptions of fraud 5.The criteria for transmission to the CIF are defined in a circular memorandum of May 22, 2014 6, which gives the tax authorities significant assessment leeway.The tax authorities transmit to the CIF every year around 1,000 cases after completed tax audits, which represents (i) 2% of tax audit cases, (ii) 7% of cases subject to tax penalties, and (iii) 20% of cases for which taxes due and notified exceed €100,000.
  2. The CIF's opinion is not reasoned and cannot be appealed.This opinion is binding on the tax authorities.In 2017, 95% of the CIF's opinions were favorable.
  3. In case of a favorable opinion by the CIF, the tax authorities file a complaint with the competent public prosecutor, who has discretion as to whether it brings charges.

This procedure occurs in most cases after a tax audit and if the tax authorities wish in addition to have criminal sanctions applied.In addition, the scope of the "Bercy lock" is limited to only the tax offences defined by the French Tax Code (CGI) 7 and not to the tax offences under ordinary law, within the scope of the criminal code 8, even if they have a tax purpose.

Therefore, the "lock" procedure's purpose is not to allow the taxpayer, through governmental action, to avoid paying the income taxes and penalties due.On the contrary, the report points out that, "the statistics of tax audits have never ceased increasing these past ten years, going from less than €12 billion in taxes and penalties notified in 2005 to more than €21 billion in 2015."

However, the debate crystalized around the "Bercy lock", which restricts the public prosecutor's ability to freely prosecute since he is aware only of cases the tax authorities submit to him for an assessment.This "Bercy lock" is in effect seen by some, and wrongly so, as a possibility to avoid payment of taxes.The legitimacy of the "Bercy lock" has weakened all the more since the emergence of well-known political-financial cases.

Therefore, it was the information commission's role to clarify this legal, political and moral debate to redefine the criteria for the administrative selection of cases that could be subject to criminal prosecution:this is the true "Bercy lock", as, in nearly all cases, the CIF issues a favorable opinion.

I - Modernization of procedures for selecting cases with criminal aspects

After a tax audit by the tax authorities, the fact-finding mission recommends, "defining legal criteria defined by Parliament so as to constitute in an objective manner a pool of cases based on which it would be examined whether to criminally prosecute for tax fraud."

These cases would be chosen if, alternatively:

  1. the adjusted taxes are above a certain threshold 9 and were subject to penalties showing the intent to avoid paying the taxes;
  2. they are categorized as aggravated tax fraud 10, independently of the amount avoided;
  3. the taxpayer is a repeat tax fraud offender.

These objective criterias allow one to constitute a set of cases that may potentially be subject to criminal prosecution by the public prosecutor 11 after they are examined.

In this respect, the report contemplates two possibilities for handling cases:

> transmitting all the cases chosen to the ICF, whose powers would be increased.Accordingly, its opinion would be only consultative and the public prosecutor, to whom all the opinions have been referred, would subsequently decide whether or not to prosecute.However, the fact-finding mission points out that this possibility does not sufficiently involve the public prosecutor upstream, which is why the report recommends the second possibility.

> eliminating the CIF.Consequently, the cases would be directly jointly examined by the tax authorities and the public prosecutor, who would together decide which cases should be prosecuted.In case of disagreement, the public prosecutor's opinion would prevail.

In the hearings carried out by the information commission, several parties were in favor of keeping the CIF 12.Indeed, in the event the real "Bercy lock" were eliminated by implementing legal and objective criteria for administrative selection, the CIF would play a role as a regulator of the policy for the tax authorities' filing of complaints, thereby countering the risk of the tax authorities being partial.According to the persons questioned, its elimination would be perceived by taxpayers as a loss of a safeguard.Only Mrs. Eliane Houlette, Financial Public Prosecutor, took a position in favor of eliminating the CIF, as it is only the last "filter" and is not the heart of the "Bercy lock".

II - Proposals for changes in criminal justice system for tax matters

The information commission proposes to diversify the procedures for prosecuting tax fraud since, under current law, the only means of prosecution available to the public prosecutor is before the criminal court and, if applicable, after the opening of a judicial inquiry.

The report, therefore, recommends extending the procedure for an arraignment with a plea bargain13 ("CRPC") to tax fraud, as suggests the bill on fighting against fraud adopted in the Council of Ministers last March 28, and which will be examined in June by the Senate 14.

This means of prosecution would ensure a quicker and more effective criminal response in cases of simple tax fraud recognized by the taxpayer as soon as the situation has been formalized.

Similarly, the report asks the legislature to extend the possibility of concluding judicial agreements in the public interest ("CJIP") to tax fraud.As a reminder, created by the Sapin II Act 15, the CJIP is a settlement agreement concluded between the public prosecutor and only legal entities charged with certain ethics offences.It may provide for the payment of a fine in the public interest 16, the implementation of a compliance program and/or the obligation to compensate the harm caused to possible victims in exchange for putting an end to prosecution 17.

According to the report's authors, this means of prosecution would be, "particularly adapted to cases of collusion in tax fraud committed by legal entities, when the legal entity's management teams have changed and have taken measures so that fraud does not reoccur."Similarly, as legal entities are more sensitive to risks to their reputation 18, this would undoubtedly motivate them to pay a fine in the public interest in exchange for an end to prosecution.

Lastly, the report proposes automatic transmission of tax fraud reports from the Tracfin unit to the national financial public prosecutor in order to improve detection of tax offences.

This report's proposals, which drew a broad consensus in the parliamentary fact-finding mission, could be integrated in part into the bill on fighting against fraud in its examination in June by the Senate and when the National Assembly resumes work.

Footnote

1 http://www2.assemblee-nationale.fr/documents/notice/15/rap-info/i0982/(index)/rapports-information

2 Cf. Article 112 of the Act of June 25, 1920, enacting the creation of new tax resources.

3 Cf. Article 1 of Act no. 77-1453 of December 29, 1977, granting procedural safeguards to taxpayers in tax and customs matters.

4 Cf. Article L. 228 of the French Book of Tax Procedures.

5 In this case, the matter can be directly referred to the CIF, even without a tax control, in the event that, "presumptions establishing fraud have been brought to light in an investigation, audit or any other management or accounting activity" (Cf. BOI-CF-INF-40-10-10-30-20150618, §50).

6 Cf. circular memorandum on fighting against tax fraud of May 22, 2014.

7 I.e., the general misdemeanor of tax fraud (Article 1741 of the French Tax Code, the misdemeanors treated as tax fraud (Article 1743) and the special tax fraud misdemeanors (Articles 1771 to 1783 B, 1810 to 1821, 1837 to 1839 and 1840 O to 1840 Q CGI).

8 I.e., the misdemeanor of embezzlement of VAT (Article 313-1 of the French Criminal Code) and the misdemeanor of laundering of tax fraud (Article 324-1 of the French Criminal Code).

9 The threshold of €100,000 of taxes notified is mentioned:the number of cases to be examined, therefore, would be around 5,000.

10 The aggravating circumstances of tax fraud are defined in paragraph 2 of Article 1741 of the French Tax Code; in particular, this concerns, conspiracy, the interposition of natural persons or legal entities, the use of accounts abroad or forged documents.

11 In certain cases, it is possible that the public prosecutor cannot prosecute due to the applicable criminal statute-of-limitations rules (Cf. our article on this subject) or the identification of the perpetrator.

12 In particular, the representatives of the National Conference of Public Prosecutors, the public prosecutor with the French Supreme Court and lawyers questioned.

13 This means of prosecution avoids a trial for a person who recognizes the charges against him.The sentence proposed by the public prosecutor, however, must be approved by a court (Cf. Articles 495-7 to 495-16 of the French Code of Criminal Procedure).

14 http://www.senat.fr/leg/pjl17-385.html

15 Cf. Article 22 of Act no. 2016-1691 of December 9, 2016, on transparency, the fight against corruption and the modernization of public life.

16 The amount of the fine in the public interest is proportionate to the benefits of the undeclared amounts, within a limit of 30% of the average annual turnover calculated over the last three turnovers known on the date on which such undeclared amounts are reported, and the payment of such amount may be made over one year.

17 Cf. our previous article on this subject.

18 The CJIP concluded is published on the website of the French Anti-Corruption Agency.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions