A decision by the Conseil d’État in France in 2023 cast some doubt on the situation of corporate officers who may act on the foreign bank account(s) opened by their company. A recent ministerial response has reiterated the principles of this obligation.
What lessons can we learn?
Reminder of the obligation to declare foreign accounts
Taxpayers residing in France for tax purposes are required to make an annual declaration to the tax authorities of accounts opened, held, used or closed abroad during the year. This applies primarily to natural persons, but also to certain legal entities1. The obligation applies not only to accounts held by the taxpayer, but also to accounts for which the taxpayer has power of attorney.
What has the Conseil d'État ruled?
In 2023, the Conseil d'État handed down a ruling on the obligation to declare foreign accounts2. On first reading, it might have been assumed that the ruling would have very significant consequences for French tax residents with power over foreign accounts held by companies of which they are corporate officers.
Nevertheless, it is reasonable to conclude that it all depends on the facts and circumstances. This conclusion was also reached in a recent ministerial reply dated 31 August 2023.
In this case, the Conseil d’État was asked about the specific situation of a taxpayer (Mr A) who had used various companies to invoice intra-group services as part of a scheme to relocate profits outside France.
In order to carry out these transactions, a group company 50% owned by Mr A opened an account with a foreign bank; Mr A, the company’s sole director, had power of attorney over the bank account. He also ordered several transfers to be made from the bank account held by the company, to his personal bank account.
Considering these facts, the Conseil d’État ruled that Mr A had an obligation to declare the existence of the foreign account opened in the company’s name.
What lessons can we learn from this?
The Conseil d’État’s decision raised an important question: must accounts opened abroad by companies not established in France be declared by their directors, even if they only hold a power of attorney over these accounts?
A quick glance at the Conseil d’Etat ruling would lead you to answer in the affirmative. However, in order to answer this question, we need to go back to the basics of this obligation:
- Individual taxpayers who are French tax residents or non-trading companies who have opened, held, used or closed a bank account abroad (Article 1649 A CGI) must declare their foreign accounts;
- The French taxcode (Article 344A Annex III CGI) also specifies that an account is deemed to have been used by one of the persons referred to above if that person has carried out at least one credit or debit transaction during the period in question, whether they are the account holder or have acted by proxy, either on their own behalf or for a person who is a resident;
- The obligation to declare accounts opened abroad was introduced as part of the prevention of tax fraud; it is a means of obtaining information on assets placed abroad in order to ensure that these assets are correctly taxed in the name of the taxpayer concerned.
Going back to the basic principles of this obligation, it seems to us that the holding of accounts opened abroad by a company does not have to be systematically declared by its principal director (a French resident) as part of their own declaration of accounts and contracts opened abroad.
The ministerial reply of 31 August confirms these principles, specifying however that if the real ownership of the bank account is concealed behind legal devices, then the account held abroad by the company must be reported on the personal tax return of the person who actually receives the benefit.
In view of the above, the overall facts and circumstances must be analysed in order to determine whether the obligation to declare an account applies. If the managing taxpayer confuses their own assets with the company’s assets and uses the company’s foreign bank assets directly for their own benefit, then there is no doubt that the tax authorities will require a proper declaration.
1In general, legal entities established in France, regardless of their tax status, other than commercial companies, are subject to this declaration.
2Conseil d'Etat, 8th chamber, 3rd section, No. 463267