Banking secrecy and tax authorities: your rights and their limits

Le banking secrecyThe right to privacy, long considered an essential protection of private life and business, is now being redefined in the light of the growing prerogatives of the tax authorities. While the principle remains that the information held by your bank is confidential, the law provides for numerous exceptions allowing the tax authorities to access this data. Understanding the scope of these exceptions and the limits of the tax authorities' powers is essential for any taxpayer wishing to know their rights and obligations. What is the general rule? What documents can your bank disclose to the tax authorities? What procedures does the administration use, and how can you defend yourself? This article explains the complex mechanisms governing the relationship between banking secrecy and the tax authorities in France.

The principle: is banking secrecy enforceable against the tax authorities?

The question of the enforceability of the banking secrecy to the tax authorities is central. While confidentiality is the rule, there are major exceptions dictated by the general interest and the fight against fraud.

The general rule and its legal basis

In principle, credit institutions are bound by banking secrecy, as defined by article L. 511-33 of the French Monetary and Financial Code. They may not disclose their customers' confidential information. However, this same article, as well as other specific texts, provide for notable exceptions. Basically, banking secrecy is not an absolute right for the customer but a professional obligation for the banker, an obligation that may be waived by law.

When dealing with the tax authorities, this principle of confidentiality is largely attenuated. The legislator considered that the objective of fair tax collection and the fight against tax evasion took precedence over the absolute protection of bank information. As a result, numerous laws allow the tax authorities to obtain bank information, either by direct communication or by means of compulsory declarations imposed on banks. Article L. 83 of the French Tax Procedures Code (LPF) is emblematic in this respect, stipulating that institutions subject to control by the administrative authority (including banks) must disclose service documents held without being able to invoke professional secrecy.

The move towards greater transparency (FATCA, OECD, EU)

The global and European trend is towards increasing tax transparency, thereby reducing the scope of banking secrecy. Several major initiatives illustrate this trend:

• FATCA (Foreign Account Tax Compliance Act) The US Tax Act of 2010 requires foreign financial institutions, including French ones, to report accounts held by US citizens or residents ("US Persons") to the US tax authorities (IRS). To avoid a heavy withholding tax, France signed an intergovernmental agreement (IGA 1) on 14 November 2013, organising the collection and annual transmission of this information by the French tax authorities to the IRS. Article 1649 AC of the General Tax Code (CGI) provides the national legal basis for this collection.
• OECD standards The Organisation for Economic Co-operation and Development actively promotes the exchange of information for tax purposes. Article 26 of its Model Tax Convention, updated in 2012, and the Model Information Exchange Agreement (2002) prevent a State from refusing a request for information solely on the grounds that it is held by a bank. The OECD has developed a Common Reporting Standard (CRS) for the automatic exchange of information on financial accounts, which has become the global standard.
• European Union Directives The EU has issued a large number of directives aimed at strengthening administrative cooperation in tax matters. Directive 2011/16/EU, which has been amended several times (notably by Directive 2014/107/EU known as "DAC 2"), organises the mandatory automatic exchange of information on a wide range of financial income (dividends, interest, account balances, etc.) between Member States. These texts explicitly prohibit Member States from invoking banking secrecy to refuse to cooperate. More recently, Directive (EU) 2021/514 ("DAC 7") further extended these exchanges, notably to digital platform operators.

This international and European convergence drastically limits the ability to invoke banking secrecy in response to requests for tax information, both domestic and foreign, under administrative assistance agreements.

The tax authorities' right of disclosure (LPF L.81, L.83, L.85)

The tax authorities have a wide-ranging right of disclosure, giving them direct access to a great deal of information held by banks. This right is mainly governed by articles L. 81, L. 83 and L. 85 of the French Tax Procedures Code (LPF).

Which documents can be disclosed by the bank?

The scope of accessible documents is very broad. Pursuant to Articles L. 83 and L. 85 of the LPF, the administration may require the disclosure of :

• Mandatory accounting books and related documents.
• Income and expenditure vouchers.
• Service documents held by the bank.

Case law has confirmed that this right includes :

• Customer account statements (natural or legal persons).
• Details of transactions recorded in these accounts.
• Copies of cheques and transfer orders.
• The identity of account holders and the nature of these accounts.
• Information on loans granted.
• The identity of agents or guarantors.
• Information on securities transactions and gold purchases.
• Documents relating to safes.

Article L. 81 of the LPF specifies that this right applies regardless of the medium used to store the documents (paper, computer) and that officials may take copies.

Limits and procedures (selective applications, no dual employment)

Although extensive, this right of communication is not unlimited and its exercise is subject to certain rules:

• Terms of exercise Right of access: The right of access may be exercised either on site, at the bank's premises, or by correspondence (including electronic correspondence). Authorised officials (mainly public finance inspectors and auditors) consult the documents and take copies. A notice of visit is usually sent, although this is not compulsory. A non-adversarial report records the operations.
• Selective applications The tax authorities must avoid "fishing expeditions". The internal instructions (BOFIP) recommend targeted and selective requests, even if case law states that the tax authorities are not obliged to contact the taxpayer first before questioning the bank.
• No dual employment Tax instructions recommend avoiding requests for information that has already been provided to the tax authorities by other means.
• Respect for professional secrecy outside the tax field While banking secrecy is not enforceable for tax assessment and control purposes, the bank remains bound by secrecy with regard to information that is not relevant for tax purposes.

These limits are designed to reconcile the needs of tax audits with respect for the rights of taxpayers and banks.

Retention period for banking documents (LPF L.102 B)

Banks are obliged to keep the documents on which the tax authorities have a right of access for a specific period of time. Article L. 102 B of the LPF sets this period at six years. This period runs :

• From the date of the last transaction recorded in the books or registers.
• From the date on which the documents were drawn up.

During this period, the bank must be able to present the documents required by the tax authorities. Any premature destruction of these documents will be penalised.

Banks' mandatory declarations to the tax authorities

In addition to the right of disclosure exercised at the request of the tax authorities, banks are required to voluntarily transmit a certain amount of information to the tax authorities. These automatic declarations are a major exception to the banking secrecy.

FICOBA: declaration of account openings/closures (CGI art. 1649 A)

This is undoubtedly the best-known reporting obligation. Article 1649 A of the French General Tax Code (CGI) requires any person or organisation that normally receives funds on deposit (i.e. mainly banks) to declare to the tax authorities :

• Opening any type of account (current account, securities account, savings account, etc.).
• Closing these accounts.
• Safe deposit box hire.

This information is fed into the Fichier des Comptes Bancaires et Assimilés (FICOBA), managed by the Direction Générale des Finances Publiques (DGFiP). The precise terms and conditions of these declarations are set out in articles 164 FB to 164 FF of Appendix IV to the General Tax Code. FICOBA enables the tax authorities, as well as other authorised bodies (Customs, social security bodies, bailiffs with an enforcement order, TRACFIN, etc.), to identify accounts held by an individual. Failure to make a declaration, or making an incorrect declaration, exposes the bank to the specific fines set out in article 1736, IV of the CGI (€1,500 per undeclared account, €150 per omission or inaccuracy up to a maximum of €10,000).

Declaration of securities transactions (IFU - CGI art. 242 ter)

Financial institutions that maintain securities accounts or are involved in securities transactions are required to file an annual summary tax return. This declaration, known as the Imprimé Fiscal Unique (IFU), is set out in article 242 ter of the CGI.

It must mention, for each account holder :

• Details of securities transactions carried out during the year (purchases, sales, exchanges, etc.).
• Income from transferable securities (dividends, interest, etc.).
• Realised capital gains or losses.

This information enables the tax authorities to pre-fill part of taxpayers' tax returns and to check the consistency of the income declared. The European directive on the taxation of savings (now integrated into the DAC regime) has also influenced the content of this declaration to facilitate the exchange of information between Member States.

Declaration of assets of deceased customers (CGI art. 806)

In the event of the death of a customer, the bank is obliged, under article 806 of the CGI, to declare to the tax authorities the assets (securities, sums, securities) it holds on behalf of the deceased. This declaration must be made before the funds are paid or handed over to the heirs, or at the latest within a fortnight of these operations.

The purpose of this obligation is to enable the authorities to check the inheritance tax base. However, there are thresholds for declarations:

• 1,500 for estates devolving to collaterals or non-parents.
• 7,600 for inheritance to direct heirs or the surviving spouse.

In the event of failure to declare, the bank may be held personally liable for payment of any inheritance tax due, unless it takes recourse against the heirs. The tax authorities may also specifically request a list of assets at the date of death in the case of a joint or collective account (CGI art. 808).

Declaration of uncrossed cheques (CMF art. L.131-71)

Although the use of uncrossed cheques (transferable by endorsement) is very rare today for private individuals, the law maintains a specific reporting obligation. Article L. 131-71 of the French Monetary and Financial Code (CMF), supplemented by article L. 96 B of the French Tax Code (LPF), states that the tax authorities may at any time ask a bank to disclose the identity of persons who have been issued with cheque forms that have not been crossed in advance and have not been made untransferable by endorsement (except in favour of another financial institution). It may also obtain the numbers of these cheque forms. The purpose of this provision is to trace the use of these specific means of payment.

The tax authorities' right of inspection and seizure (LPF L.16 B)

In addition to the right of communication, the tax authorities have a more intrusive prerogative: the right to visit and seize premises, sometimes referred to as a "tax search". This procedure, which is governed by Article L. 16 B of the French Tax Procedures Code, allows tax officials to search for evidence of tax fraud in relation to direct taxes and VAT by entering any premises, including bank premises.

Conditions and prior judicial authorisation

Unlike the right of communication, the implementation of a domiciliary tax visit requires prior judicial authorisation.

• Authorisation from the JLD The visit must be authorised by an order of the Juge des Libertés et de la Détention (JLD) of the judicial court within whose jurisdiction the premises to be visited are located.
• Reasoned request The administration must submit a reasoned request to the JLD, setting out the presumptions of fraud that justify the measure. The judge checks that the request is well-founded and that it is not abusive.
• Contents of the prescription The order must precisely specify the premises authorised for the visit, the authorised officers and the means of appeal.

This judicial authorisation is an essential guarantee of the rights of the taxpayer and the occupier of the premises visited.

Conduct of the visit and seizure of documents/offers

The tax inspection takes place under the authority and control of the JLD who authorised it.

• Authorised officers and presence of an OPJ The visit is carried out by specially authorised tax agents with at least the rank of inspector. They must be accompanied by a Judicial Police Officer (OPJ).
• Hours and presence of the occupant The visit may not begin before 6 a.m. or after 9 p.m. (except on premises open to the public) and must take place in the presence of the occupier of the premises or his representative.
• Document access and input The officers have access to all documents (paper and computer) likely to constitute evidence of the fraud being investigated, and can examine and seize them. The OPJ ensures that non-tax professional secrecy and the rights of the defence are respected.
• Safe visit If, during a visit to a person's premises (e.g. their home or business), the officers discover the existence of a safe deposit box held by that person in a bank, they may, with specific authorisation issued by the judge (even by telephone), proceed immediately to visit the safe deposit box.
• Minutes A detailed report is drawn up, describing the operations and listing the documents seized in the appendix. A copy is given to the occupant.

Appeal procedures for taxpayers

The Act of 4 August 2008, following a ruling against France by the European Court of Human Rights (Ravon ruling), strengthened procedural guarantees and appeal procedures:

• Appeal against order The JLD's order authorising the visit may be appealed to the First President of the Court of Appeal.
• Appeals against the conduct of operations The legality of the visit and seizures may also be challenged before the First President of the Court of Appeal.

These appeals enable the legality and proportionality of the measure to be checked after the event. It is strongly recommended that you seek the assistance of a banking lawyer or tax specialist to exercise these remedies.

What are the penalties for refusing or obstructing communication?

Refusal by a credit institution to provide information legitimately requested by the tax authorities or obstruction of their inspection procedures exposes the bank and its directors to administrative and criminal penalties. The banker's liability can be engaged.

Administrative fines for refusal to provide information (CGI art. 1734)

Article 1734 of the CGI specifically penalises refusal to disclose information when exercising the right to disclosure under Articles L. 81 et seq of the LPF.

• Amount of fine A fine of €10,000 per request may be imposed for refusal to provide information or for any other obstructive behaviour. This fine applies even if only part of the documents or information is withheld.
• Not kept or destroyed A fine of the same amount (€10,000) is applicable in the event of failure to keep mandatory documents or their destruction before expiry of the legal retention period (6 years in accordance with LPF L. 102 B).
• Opposition to copying The fine is €1,500 per document, with an overall ceiling of €50,000 per request.

These fines have been significantly increased in recent years to act as a deterrent.

Criminal penalties for obstruction

In addition to specific administrative fines, obstructing the work of tax officials can also be a criminal offence.

• Opposition to duties (CGI art. 1746) Article 1746 of the General Tax Code punishes with a fine of €25,000 and, in the event of a repeat offence, with six months' imprisonment, "anyone who [...] has obstructed agents appointed to investigate and record offences [...] or has refused to provide them with documents required for their operations". This criminal penalty may be combined with administrative fines.
• Opposition to a tax audit (LPF art. L. 74) Although mainly aimed at the taxpayer himself during an accounting audit or a personal tax situation review, opposing a tax audit may lead to an ex officio assessment of the tax bases. Indirectly, a systematic refusal to provide information by the bank could be interpreted as contributing to this opposition.

Given the complexity of the rules and the severity of the penalties, it is vital for banking institutions to put in place clear internal procedures to respond to requests from the tax authorities, while ensuring that their customers' rights are respected within the limits authorised by law.

For banks, it's a tricky balancing act between respecting customer confidentiality and complying with legal obligations to notify tax authorities. For taxpayers, knowing the exceptions to banking secrecy understanding and anticipating tax inspections. If you have any doubts about the legality of a request for information or the conduct of an inspection procedure, the assistance of a lawyer with expertise in tax and banking law is essential to ensure that your rights are respected. If you are faced with a request from the tax authorities concerning your bank accounts, contact our firm for an analysis of your situation.

Sources

• Monetary and Financial Code (in particular art. L. 131-71, L. 511-33)
• Livre des procédures fiscales (LPF) (in particular art. L. 16 B, L. 81, L. 83, L. 85, L. 102 B)
• General Tax Code (CGI) (in particular art. 242 ter, 806, 1649 A, 1649 AC, 1734, 1746)
• FATCA agreement between France and the United States (14 November 2013)
• Directive (EU) 2011/16/EU on administrative cooperation in the field of taxation
• Directive (EU) 2014/107/EU amending Directive 2011/16/EU as regards automatic and compulsory exchange of information for tax purposes