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18 January 2018 France expands provisions on Automatic Exchange of Information in Tax Matters Article 56 of France's Amending Finance Bill for 2017 (law n° 2017-1775 dated 28 December 2017) has expanded the provisions contained in the French Tax Code (FTC), the French Tax Procedures Code (TPC) and the French Monetary and Financial Code (MFC) related to the Automatic Exchange of Information (AEoI) in Tax Matters. Specifically, the provisions cover the United States Foreign Account Tax Compliance Act (FATCA), the Organisation for Economic Co-operation and Development Common Reporting Standard (CRS) and the European Directive on Administration Cooperation in Taxation (DAC). These amendments introduce French regulators (ACPR1 and AMF2) to control the compliance and apply penalties to financial institutions, while providing that the tax authorities also remain competent to do so. The due diligences to be carried out are strengthened with the introduction within the French Regulations of a mandatory audit trail and control plan to be maintained by financial institutions. The prohibition to open a new account without a self-certification has been enacted with a new reporting of account holders who would not have provided the financial institutions with the necessary information regarding their tax residency and, where applicable, Tax Information Number (TIN) (and for their controlling person if needed). This new rule comes with new penalties, notably applicable directly to each account holder that could generate commercial risks. Introduction of regulators (ACPR and AMF) as authorities in charge of monitoring AEoI due diligences (articles L. 84 D of the TPC and L. 612-1 and L. 621-20-6 of the MFC) The ACPR and AMF regulators have the authority to oversee the implementation of the due diligence obligations (notably tax residency and TIN) identification functions. In this framework, these regulators may rely on the Anti-Money Laundering (AML) missions they already perform. It should however be noted that the Tax Authority remains authorized to oversee the reporting obligations. Regulators will have to share the relevant information with the tax authorities. Mandatory audit trail relating to accounts, payments and persons to be maintained by the Financial Institutions (article 1649 AC of the FTC) Financial Institutions must keep all information and documentation supporting the performance of identification due diligences regarding accounts and payments until the end of the fifth year following the year in which the reporting is submitted to the Tax Authorities. Financial Institutions will notably have to keep evidence of contacts with their customers as well as all documentary evidence, including the self-certification and any other documentation evidencing the diligences performed. Mandatory collection of a CRS / DAC self-certification (new article L. 564-1 of the MFC and article 1649 AC of the FTC) Upon an account opening or conclusion of a contract, if an account holder declines to provide information and supporting documentation relating to their tax residency or TIN, or regarding the tax residency or TIN of their controlling persons, the Financial Institution will not be allowed to enter into a contract with such a customer. This is applicable notwithstanding the provisions relating to the so-called "right to an account" under article L. 312-1 of the MFC. From a practical standpoint, self-certification must be systematically collected upon account opening. Account holders are also required to provide the Financial Institutions with information regarding their tax residency and TIN unless these Financial Institutions are not required to collect them under the regulation. Financial Institutions are required to implement an internal control plan to monitor the correct implementation of the internal procedures relating to the AEoI obligations, as defined under articles 1649 AC of the FTC, L. 102 AG of the TPC and L. 564-1 of the MFC. It should be noted that the ACPR and the AMF should notably be in charge of controlling the correct implementation by the Financial Institutions of this obligation. New reporting of account holders who have not provided the Financial Institutions with their self-certification (new article L. 102 AG of the TPC) Financial Institutions must report to the tax authorities a list of account holders who: (i) have not transmitted the information relating to their or to their controlling person's tax residency and TIN; (ii) following a second request from the Financial Institution; and (iii) at the end of a period of 30 days following the reception of this second request. The content as well as the practical modalities of the requests sent to the account holders and of the transmission of the list to the tax authorities will be specified by a decree. It will be important to know whether such reporting constitutes a new ad-hoc declaration or only additional elements to be included in the existing yearly reporting (XML file). New fine for failure by a Financial Institution to report its account holders who have not provided their CRS/DAC self-certification (article 1729 C bis of the FTC): Late transmission of the list of account holders who have not provided their self-certification would trigger a tax penalty of €200 per undeclared account holder. New fine for client account holders who do not provide their CRS/DAC self-certification (new article 1740 C of the FTC): Failure for an account holder to provide the necessary information relating to their tax residency and, if applicable, to their TIN, would trigger a fine amounting to €1,500. The existing fine of €200 per reportable account (article 1736 of the FTC) for the late submission of the annual reporting of reportable accounts (i.e., reporting obligation defined under article 1649 AC of the FTC) is still applicable. The implementation within each Financial Institution of an AEoI compliance program, with written procedures, an audit trail of the due diligences performed and an internal control plan, is required to be compliant with the regulations as well as to prepare for the forthcoming audits to be performed by both the regulators and the Tax Authorities. 1 Autorité de Contrôle Prudentiel et de Résolution – In English, the "French Prudential Supervision and Resolution Authority" is an independent administrative authority, which monitors the activities of banks and insurance companies in France. 2 Autorité des Marchés Financiers – In English, the "Financial Markets Regulator" is the stock market regulator in France. Document ID: 2018-5161 |
