Warning: Starting September 30, 2015, any individual who resides in France and holds a bank account in the United States will be reported to the French tax authorities.

This disclosure is required under the French-American agreement on the automatic exchange of banking information (FATCA), which came into force in early 2015 (French Décret No. 2015-1 of January 2, 2015).

In France, this agreement concerns any individual who is a French tax resident and holds a bank account in the United States.

If the US account is not duly reported to the French tax authorities, the taxpayer may incur heavy fines.

WARNING : this note is no more up to date. For example, there is no more fine calculated on pourcentage of the account

Timetable for implementation of the automatic exchange requirement

The first automatic exchanges of bank information will take place on September 30, 2015 and will concern information collected as of July 2014

Individuals concerned

The agreement concerns any individual who resides in France and holds any of the following in the United States:

-          A deposit account (checking account, savings account, etc.) that generates more than $10 interest per year;

-          A brokerage account (securities account, etc.) that generates taxable income;

-          A life insurance policy with a cash value exceeding $50,000.

American citizens can thus be considered French tax residents.

For information, the US Embassy in Paris has estimated that over 100,000 American citizens currently reside in France.

French citizens with bank accounts in the United States are also concerned.

Information transmitted

For each individual concerned by the agreement (see previous section), the Internal Revenue Service (IRS) has agreed to transmit the following information:

-          the name, address and birthdate of the individual concerned;

-          the account number;

-          the name and identification number of the US bank;

-          the gross amount of interest credited to the account;

-          the gross amount of US source dividends credited to the account;

-          the gross amount of other account income (capital gains/losses, etc.).

Risks faced by the individuals concerned

In principle, individuals residing in France who hold a foreign account are required to report the income generated by that account on their French income tax return. If the income exceeds the qualifying limit, the value of the account must be reported on a wealth tax (“ISF”) return.

Failing this, the French tax authorities may tax this unreported income and apply a penalty. They may also apply a heavy fine for failure to report the account.

These penalties also apply to taxpayers who voluntarily bring themselves into compliance, but they are considerably lower.

Income tax (impôt sur le revenu)

In principle, individuals who are French tax residents are taxed in France on all of their worldwide income.

Therefore, income from US accounts must be reported in France.

If a French tax resident holds an unreported account in the United States, the French tax authorities may tax all unreported income credited to the account since January 1, 2009.

Back taxes on this unreported income may be subject to a 40% penalty for willful failure.

However, for taxpayers who voluntarily bring themselves into compliance with the French tax requirements, this 40% penalty will be capped at 15% or 30% depending on the taxpayer’s situation (15% if the assets are from an inheritance or were acquired when the taxpayer was not a French tax resident, and 30% in other cases).

Wealth tax (impôt de solidarité sur la fortune, or ISF)

In principle, individuals who are tax residents in France must declare all of their assets on their ISF return, regardless of whether their assets are located in France or abroad.

However, inpatriates are granted preferential treatment: foreign property belonging to individuals who have resided in France for less than five years is exempt from wealth tax.

Accordingly, US bank accounts held by individuals who have resided in France for more than five years must be included on their ISF returns.

If the accounts are not duly reported, the French tax administration may require the account holders to pay wealth taxes relating to the account dating back to 2007.

These back taxes may, in principle, be subject to a 40% penalty for willful failure.

However, for taxpayers who voluntarily bring themselves into compliance with the French tax requirements, this 40% penalty will be capped at 15% or 30%, depending on the taxpayer’s situation.

Fine for failure to report

In principle, all French tax residents who hold a foreign bank account are required to report the account yearly, by filing CERFA form No. 3916 along with their income tax return.

The form must state the identity of the account holder, the name and address of the bank, the account number and the date the account was opened.

One form must be filed for each foreign account.

If an individual residing in France holds an unreported US bank account, the French tax authorities may impose a fine of up to 20% of the value of the account plus €1,500.

The fine for failure to report can be broken down as follows:

For taxpayers who voluntarily bring themselves into compliance with the French tax requirements, the fine will be capped at 1.5% or 3% of the account value for each year (1.5% if the assets are from an inheritance or were acquired when the taxpayer was not a French tax resident, and 3% in other cases).

Practical advice

I strongly advise all French tax residents with unreported US bank accounts to report their accounts when they file their tax returns in May 2015 by attaching CERFA form No. 3916.

By returning this form, they will avoid having to pay a fine for failure to report in 2015.

In principle, bringing a US bank account into compliance also requires amended income and wealth tax returns to be filed with the Service du traitement des declarations rectificatives (STDR, 17 place de l’Argonne – 75019 PARIS), taking into account the income and value of the bank account (income tax returns for 2009-2013 and wealth tax returns for 2007-2014).

In reality, if the stakes are low, the interest in filing amended returns with the STDR is questionable. Even if the situation isn’t perfect, taxpayers can protect themselves against the main risks by reporting their accounts on form No. 3916.

If the stakes are high, however, taxpayers must file amended returns with the STDR. In that case, it would be a good idea to contact a tax lawyer (like me) to ensure your rights are fully protected.

Trusts and offshore companies

The penalties that apply to French taxpayers who hold a foreign trust can be very high: 40% of the value of the trust, or a minimum of €70,000. High taxes also apply to taxpayers who hold offshore companies.

As matters stand, bank accounts held through a trust or an offshore company are not concerned by the current rules governing automatic exchanges of information.

However, the OECD standard for automatic exchange of information (the Common Reporting Standard, or CRS), which comes into force in 2017, contains a requirement to "look through shell companies, trusts or similar arrangements" in the aim of identifying the person who actually controls the intermediary

I therefore strongly advise individuals who are beneficiaries of an undisclosed foreign trust or owners of an offshore company to bring themselves into compliance with the STDR requirements as quickly as possible.

When a taxpayer brings a trust into compliance, the STDR doesn’t apply the fine for failing to report the trust, but rather the fine for failing to report a bank account.

Considering the complexity of the rules in this area, I highly advise taxpayers to consult a tax lawyer when bringing a trust or offshore company into compliance.