Tax season is on!
You might wonder what are the risks for tax evasion in France. Tax returns are now available online and you only have a few weeks left to complete them… The time to delve into your history has arrived!
The task is complicated, and some will be tempted to wonder if it is worth it. While the difficulty of declaring your crypto earnings could discourage the most courageous, the risks involved in not declaring them should be enough to discourage the most reckless!
Is the administration able to trace back to the investors?
One of the major risks for tax evasion in France is to get caught by the administration. The administration has the legal means to verify most of the capital gains made and the technical obstacle often invoked by some should not deter taxpayers from trying to restore their capital gains.
On the one hand, the French tax authorities have a period of 3 years in principle to make adjustments. This period is extended to 10 years when the taxpayer has neither made his activity known nor filed a tax return. Thus, the 2017 income to be declared in 2018 could be controlled until 2027….
On the other hand, the tax administration has a prerogative called the “right of communication”. This power allows him to obtain disclosure of documents held by third parties, domiciled in France or abroad, concerning the controlled taxpayer. Like the American, Spanish or Indian administrations, the French tax authorities could therefore be closer to the main players in the ecosystem, such as exchanges or companies that accept to be paid in cryptoactives.
If the implementation of such measures leads to a recovery, the tax and criminal consequences could be painful.
What are the consequences for the taxpayer?
First, the tax administration would be able to carry out what is called “automatic taxation”: in this case, it would fictitiously estimate the undeclared income and tax the taxpayer accordingly. This procedure, which is harmful to the taxpayer, often results in an overestimation of income by the administration, which the taxpayer must prove in order not to have to pay more taxes than he owed.
Secondly, the General Tax Code provides, in addition to interest for late payment, for a series of penalties, including a 40% increase for deliberate failure, which is regularly implemented, and an 80% increase for fraudulent practices.
Finally, the failure to declare one’s earnings could fall within the scope of the offence of tax fraud punishable by a fine of €500,000 and 5 years’ imprisonment. From this perspective, the risks for tax evasion in France are the same whether you own crypto or not.
In view of the above, it is obvious that it is better to try to declare your cryptoactive earnings as accurately as possible rather than to rely on the “technical inability” of the administration to control.
So, which plan? At what rate?
To shed some light on this difficult task, cryptio had published an article on applicable tax plans.
Nevertheless, an update is needed to consider the recent decision of the Conseil d’Etat.
From now on, in the case of gains that may be qualified as occasional, capital gains are taxed under the capital gains on movable property regime and not under the BNC regime. The direct consequence for the taxpayer is to move from a variable rate (depending on his tax bracket) to a fixed rate of 19%, plus 15.5% social security contributions for 2017 income (and 17.2% for 2018 income).
3 important elements are to be highlighted:
- a deduction for the period of ownership (5% per year) applies from the 3rd year of ownership.
- if the total amount of the sale (and not the amount of the capital gain) does not exceed 5,000 euros, you are exempt from tax and do not have to declare the transaction.
- the Council of State implicitly seems to confirm the taxation of capital gains realised on crypto-crypto transactions.
If this new regime therefore appears favourable for the reasons given, the effects of the decision remain to be put into perspective.
On the one hand, earnings considered as usual will remain subject to BIC, and therefore taxed at a rate of up to 60% (including social security contributions). As the Conseil d’Etat has been led to reduce taxation for “occasional” earnings, it is likely that the administration will be stricter on this distinction. The composite picture of the beneficiary of this new plan would therefore be the hodler, rarely – if ever – changing position and having decided to cash-out part of his portfolio from time to time.
On the other hand, the practical arrangements for reporting may increase the workload of crypto-investors, especially since they will have to keep the supporting documents for the CA at the disposal of the administration.
How to protect yourself?
In any case, it seems essential to reconstitute the transactions carried out in 2017 as of now. Especially since, once again, the Conseil d’Etat confirmed that crypto-crypto transactions were taxable. While the amount of work required to reconstruct all transactions is discouraging, it is necessary to bear in mind that the tax consequences of forgetting a few transactions will always be much less damaging than those resulting from a total absence of declaration.
This is why we created Cryptio.
All you have to do is connect your exchanges to the platform; we consolidate your history, calculate your capital gains and losses and provide you with a report that allows you to arbitrate between the different tax plans (net income and turnover, FIFO and weighted average cost).
It should be noted that a step-by-step guide accompanying the user in his declarative process will be available on the platform.
For personalized tax assistance, please contact Blockchain Legal.