Implementation in France of the disclosure of aggressive tax planning arrangements under Action 12 of BEPS

 by Leila Majed
Master’s  degree in International Law
specialization in International taxation
PhD degree in International Taxation from Université Panthéon-Assas Paris II
Attorney at Law
member of the Hauts-de-Seine Bar


On 31 March 2015, the Organization for Economic Co-operation and Development (OECD) issued a discussion draft on mandatory disclosure rules under Action 12 (Disclosure of aggressive tax planning arrangements) of the base erosion and profit shifting (BEPS) project. The discussion draft makes a series of recommendations about the design of mandatory disclosure regimes intended to allow maximum consistency between countries while also being sensitive to local needs and to compliance costs. The discussion draft focuses in particular on international tax schemes, which are viewed as an area of special concern and the primary focus of the BEPS project. It notes that disclosure schemes that are intended to address domestic avoidance might not be sufficient to capture cross-border arrangements and provides recommendations for an alternative approach.

The discussion draft is the first draft of the output to be produced under BEPS Action 12. If the OECD’s final recommendations under Action 12 are followed, more jurisdictions can be expected to establish mandatory disclosure regimes. Jurisdictions with existing mandatory disclosure regimes also can be expected to make changes to their rules as a result of the recommendations under Action 12.

France legislation has included several BEPS-related changes since 2014 (ex: a new transfer pricing-related tax return declaration form, an increasing Transfer pricing documentation penalties and anti-hybrid arrangements law) but none of it concerns Action 12 on Disclosure of aggressive tax planning.

Indeed, France has a long practice of the abuse law principle (“abus de droit”) and a well established case law which allows both the companies and the tax administration to identify the conditions of the said principle.

The Article L64 B of the French Tax Procedural Code which allows a taxpayer to avoid the consequences of an abuse by asking for a prior clearance from the tax authorities could be better tailored: in particular, the 6 month deadline for the tax authorities to answer (or not) appears much too long as regards business imperatives. The fact that the tax authorities are not required to provide an answer is also a shortcoming.

In jurisdiction as in France with GAAR rules and extensive tax audit practice with no on-going dialogue process with tax authorities, introducing mandatory disclosure rules would only result in adding an extra layer of coercive legislation. In such jurisdictions, other means for obtaining early information should rather be explored (e.g. the UK-type of on-going dialogue with tax authorities).

Introduction of mandatory disclosure rules should be carefully examined taking into account the tax environment of each jurisdiction. Rather than focusing on an additional coercive tool, Governments should develop or deepen the legal frameworks that would allow tax authorities to obtain information.

Adopting mandatory disclosure rules in tax systems where general anti-abuse rules (GAAR) provisions do exist and where tax audit practices are stringent may only deteriorate the position of the taxpayers by imposing an extra burden and coercive measure.

The French business community stands strongly against the introduction of mandatory disclosure and considers the scope of rule too wide and far beyond tax fraud and the objective of BEPS.

Indeed, the draft (p.6) states that the main objectives of mandatory disclosure rules as follows: (i) obtaining early information about tax avoidance schemes; (ii) identifying schemes, and the users and promoters of schemes; and  (iii) acting as a deterrent to reduce the promotion and use of avoidance schemes. It also mentions “potentially aggressive or abusive tax planning strategies”.

As the draft is currently drafted, the main concerns can be summarized as follows:

1. The draft goes beyond what was originally envisaged

Disclosure is departing from its true role of information to move towards a penalty system. This would definitely undermine relationship between tax payers and administration which is even more necessary in this context.

2. Disclosure is not appropriate in civil law countries

Risk assessment is a usual practice in common law countries in which off-site audits based on transmitted documents are carried out and it makes sense where on-going dialogue process with tax administration exists: tax auditors have an advisory role. Disclosure is a then way to work in concert and to evaluate the potential risks before they arise.

On the contrary, and logically, it does not exist in most civil law countries, such as France, where on-site audits are conducted and data directly collected in the company. Tight connexion between accounting and taxation in the French system already allows the administration to get a good knowledge of the operations and transactions carried out in the company.

Disclosure would then be assimilated to a request for a tax audit. Extra compliance burden will be imposed on such companies that are actually not submitted to this kind of documentation requirements.

Besides, according to BEPS, business would be subject to two risk assessments: Country by Country Report and disclosure. Both are new for many groups and therefore the balance between additional compliance costs to taxpayers with the benefits for tax administrations is questioned.

Finally, more information on the articulation of these two assessment tools is welcomed. 

3. This draft appears as a transposition of the Anglo-Saxon rules which do not correspond to the general principles of French law. Consequently, possible regulatory or constitutional issues may arise:

a. Lack of clarity of the rules: clarity is the corner stone in comprehension for taxpayers and appropriate implementation for tax administrations. A “tax benefit” which could either be the main or one of the main purposes (§81) or a “material impact” are definitely not sufficient enough to meet this clarity requirement.

As for France, the French Constitutional Court has rejected a proposal of disclosure of tax schemes included in the finance bill for 2014[1] for lack of accessibility and comprehensibility of the law: in other words, the project was considered to be unclear and ambiguous creating an excessive legal uncertainty for taxpayers and a risk of arbitrary application of the law by tax the administration. 

b. Extensive definition of abuse: the French Supreme Court decided in 2011[2] concerning the participation exemption regime providing exemption of dividends following a capital increase: the operation has been considered as non-abusive since it was not realized for the sole purpose of avoiding or reducing tax liabilities. It also has to be noted that the simple fact of reducing tax liabilities (e.g. tax benefit) is not to be considered as abusive according to the French Supreme Court[3].

To characterize an abuse of law, the notion of artificial arrangement or scheme is essential: “what seems an abuse of law […] is not the only fact for optimizing the choice of the location of a company to take advantage of comparative tax benefits within the EU but to create an artificial ad hoc structure, without any substance or own existence or self-justification, for the sole purpose of placing it in a given tax position”.

In those two cases, the Court sanctions a definition of abuse of law which is too wide especially as the purpose of benefiting from a tax benefit is not the only one.

c. Conflict with professional secrecy: as for France, promoters are most of the time – if not always – lawyers or members of regulated professions. In this regard, they would oppose their professional secrecy when being asked to disclose a list of clients. It is probably also the case in other civil law countries as in Portugal where promoters do not have any obligation to provide the clients list. (p.77).

Legal privilege whereby all communications are protected from being disclosed could create discrepancies as it apply differently and can benefit to different persons from one country to another.

Disclosure might also affect in some extend the right of defense. 

d. Impossible fulfilment of some obligations: the draft (§ 241) imposes on taxpayers the obligation to disclose information “even if they are not a direct party to the cross-border outcome”. When a document is not at the disposal of a taxpayer, this latter cannot be obliged to provide it to the tax Administration and before all not be sanctioned for the failure to do so. The French Constitutional court has issued a decision concerning a proposal in the Finance bill for 2014 where taxpayers were compelled to provide the French authorities with any decisions/rulings/guidelines issued by foreign tax Administrations to related entities. The decision has limited the scope of the proposal to information that is at the disposal of the taxpayer[4].

It should be noted that being part of a group does not necessarily mean having more information on a scheme used by another entity of the group, and there is no valid reason to put more obligations on entities being part of a group.

Finally, it should also be stressed that imposing disclosure on an employee is also contradictory to the obligations arising from an employment contract, such as loyalty and confidentiality.

4. The disclosure regime, as actually proposed in the draft, encourages denunciation (p.9) or denouncement – a kind of a naming and shaming- which is morally not acceptable.   Reporting may foster a climate of persons informing on one another.


According to the French Business Community, the disclosure rules, as currently drafted in the draft, are not consistent with the general French principles and suggest the following:

– Options:  The draft presents a number of existing disclosure initiatives and the possible options. If disclosure were to be implemented, a list of transactions to disclose under the condition that it is effectively limited to the listed schemes and does not include the “tax benefit” test could be an option. Disclosures on certain operations could be accepted, provided that the reporting system avoids the penalties in case of a tax audit. A list of transactions to disclose under the condition that it is effectively limited to the listed schemes and does not include the “tax benefit” test.

– Monetary penalties: Instead of a penalty proportionate to the tax savings (which is not abusive per se according to French court cases), the disclosure should allow the taxpayer not to be subject to tax penalties but only to interest for late payment. Penalties already exist for unjustified or abusive tax savings. Those penalties should be increased by the failure to disclose. Disclosure should be to the advantage of the taxpayer to incentivize him to disclose.

– Loss transaction: the incertitude on the deductibility of loss could create accounting issues since loss making entity often book deferred taxes for all or part of their loss carry forward. Rules already exist in many countries to limit the manipulation of losses or challenge the reality of losses. No additional rules should be put in place.

Unacceptable level of uncertainty for taxpayers:

If the idea is to create a new mandatory constraint to assess whether the scheme is abusive or not: not only does the wide and vague definition of abuse create an unacceptable level of uncertainty for taxpayers, but also there is no positive return for them since tax administrations are not required to validate the schemes thus declared. In this regard, it is regrettable that no counterpart, involving transparency from tax administrations, is offered to the taxpayer.

Appropriate tools to tackle aggressive or abusive tax planning exists besides, and even more important, tax administrations already have at their disposal the appropriate tools to tackle aggressive or abusive tax planning strategies: GAARs already discourage taxpayers from entering into such arrangements and many additional ways exist to obtain early information: rulings, additional reporting obligations, surveys, cooperative compliance programs. The necessity of a new constraint for business is therefore seriously questioned by the French Business Community.


[1] Décision 2014-707 DC du 29 décembre 2014 : Considérant que le législateur tient de l’article 34 de la Constitution, ainsi que du principe de légalité des délits et des peines qui résulte de l’article 8 de la Déclaration de 1789, l’obligation de définir les crimes et délits en termes suffisamment clairs et précis.

[2] Conseil d’État, 15/04/2011, 322610

[3] CE arrêt du 18 mai 2005, n°267087, SA SAGAL : « Or, dans la présente espèce, ce qui nous semble constituer un abus de droit […] ce n’est pas le seul fait d’optimiser le choix de la localisation d’une société pour profiter des avantages fiscaux comparatifs au sein de l’Union européenne, mais de constituer une structure ad hoc, artificielle, sans aucune substance propre ni existence ou justification autonome, dans le seul but de se placer dans une situation fiscale donnée […] »

[4] Décision n° 2013−685 DC du 29 décembre 2013: Considérant, en second lieu, que les dispositions de l’article 98 n’ont ni pour objet ni pour effet d’imposer aux entreprises intéressées de tenir à la disposition de l’administration des documents émanant d’administrations étrangères que ces entreprises n’auraient pas en leur possession.