Article L64 of the Livre des Procédures Fiscales is one of the tools most feared by taxpayers when it comes to tax audits. This provision enables the tax authorities to challenge legal arrangements that they consider to be abusive. Understanding the mechanisms of thisabuse of tax law procedure is essential to securing your operations and anticipating the risks of tax reassessment.

The L64 LPF is part of an anti-abuse mechanism designed to preserve tax fairness. It gives the tax authorities extensive powers to requalify certain transactions and reclaim the tax that would normally have been due. The financial stakes are considerable, with penalties of up to 80% of the recalled duties.

What is L64 LPF?

Article L64 of the Livre des Procédures Fiscales defines the procedure for punishing abuse of rights in tax matters. This text enables the tax authorities to challenge legal acts that circumvent the spirit of the law for exclusively tax purposes. The L64 LPF has two distinct bases: the first concerns fictitious acts, i.e. purely artificial arrangements with no economic reality; the second concerns acts which, although real, have been carried out with the sole aim of evading or mitigating the tax charges which the taxpayer would normally have borne.

This procedure requires the mandatory involvement of the Comité de l’abus de droit fiscal, which is an important guarantee for the taxpayer and distinguishes it from other anti-abuse measures such as the mini-abuse de droit provided for in article L64 A.

Conditions of application of Article L64

For the tax authorities to invoke the L64 LPF, three cumulative conditions must be met. Firstly, the existence of real or fictitious legal acts: the tax authorities must demonstrate either the artificial nature of the arrangement, or its exclusively tax-related purpose. Secondly, proof that the tax objective was the main, or even sole, reason for the transaction. Thirdly, it must be established that the transactions run counter to the objectives pursued by the authors of the tax legislation.

The notion of an exclusively fiscal purpose is at the heart of the system. It is not enough for a transaction to provide a tax advantage for it to be considered abusive. If there are legitimate economic, financial or family motivations, the L64 generally cannot be applied. A scheme may be legal in form but contrary to the spirit of the law, which presupposes an in-depth analysis of the legislator’s intention. The burden of proof lies entirely with the tax authorities, who must provide evidence that all these conditions have been met, thus providing essential protection for taxpayers.

Procedure for implementing L64 LPF

The procedure for implementing Article L64 is strictly defined. First, the tax authorities must notify the taxpayer of any actions they consider to constitute abuse of rights. The taxpayer then has 30 days in which to present his observations and provide evidence of the economic reality of his transactions.

If the disagreement persists, the tax authorities must refer the matter to the Comité de l’abus de droit fiscal (tax abuse committee). This body examines the case independently. The taxpayer may submit written observations and be heard by the committee.

The committee’s opinion is of major importance. If the committee considers that there is no abuse of rights, the administration cannot apply the 80% penalties provided for under L64. A favorable opinion often leads the administration to abandon its procedure.

Consequences of Requalification under L64

When the tax authorities succeed in an L64 procedure, the financial consequences are particularly severe. The administration reinstates the tax that would normally have been due in the absence of the abusive arrangement, and applies a surcharge of 80% on the recalled duties, one of the highest penalty rates in French tax law. This penalty is in addition to late payment interest calculated at the legal rate, which can quickly lead to very substantial amounts.

Tax reassessments based on the L64 LPF may concern all the taxes concerned by the abusive arrangement: income tax, corporation tax, registration duties or even ISF (wealth tax) for transactions prior to its abolition. The administration reconstitutes the tax situation as it would have existed without the disputed acts, within the limits of the applicable recovery period.

How to defend yourself against L64 proceedings

Faced with a tax reassessment notification based on the L64 LPF, the defense strategy relies primarily on demonstrating non-tax motivations. You need to analyze the administration’s grievances in detail, and gather together all the evidence to prove that your transactions were in line with legitimate economic, asset or family objectives. You can challenge the classification of your transactions as artificial arrangements by producing contractual documents, economic studies and testimonies establishing the reality and substance of your operations.

Preparing a file for the Comité de l’abus de droit fiscal is a decisive step. Written observations must be rigorously constructed and based on relevant case law, while the hearing before the committee requires a convincing oral presentation. In the event of failure before the committee, legal action can still be taken before the administrative court, followed by appeal and cassation. Depending on the circumstances, an application for tax relief may also be considered.

The assistance of a tax lawyer specialized in litigation is strongly recommended as soon as you receive the notification. The considerable financial stakes and technical complexity of the L64 procedure fully justify the use of specialized legal expertise to maximize your chances of obtaining a favorable opinion from the committee or a satisfactory outcome in litigation.