Article 1729 of the French General Tax Code is one of the pillars of the French tax system. This provision defines the main surcharges applicable in the event of insufficiencies, inaccuracies or omissions in your tax returns. Understanding this text is essential to anticipate risks and organize an effective defense against the tax authorities, particularly in the event of a tax reassessment. Tax penalties are graduated according to the seriousness of the taxpayer’s behavior.

What is article 1729 of the CGI?

Article 1729 of the General Tax Code establishes a system of surcharges applicable to additional duties claimed by the tax authorities. This text applies when you have made errors, omissions or inaccuracies in your tax returns. Article 1729 provides for three levels of penalty, depending on the nature and seriousness of the infraction.

This provision is in line with the French tax system, which favors spontaneous declarations and punishes non-compliance. The aim is twofold: to ensure tax collection and to discourage behavior that runs counter to tax obligations. The surcharges are in addition to the reminded duties and late payment interest of 0.20% per month.

The various increases provided for under article 1729

Article 1729 of the General Tax Code provides for a scale of penalties adapted to the seriousness of the taxpayer’s behavior. This gradation enables the tax authorities to match the penal response to the offence committed. The system is based on three levels of surcharges: 10% for simple breaches, 40% for deliberate intent to evade tax, and 80% for the most serious situations involving fraudulent maneuvers or concealment of activities. This progressive scale is designed to punish each type of tax offence proportionately.

10% surcharge for failure to declare or late declaration

The 10% surcharge is the most lenient penalty available under article 1729 of the CGI. It applies to two distinct situations: late filing of your tax return, and failure to file without deliberate intent. In the first case, you have missed the legal filing deadline, generally set before the 3rd working day following May 1st for online returns. In the second case, you have omitted to declare certain income or transactions out of simple negligence, with no intention of evading tax.

This surcharge is frequently applied in specific situations: late declaration of capital gains on real estate or securities, omission of property income received, failure to mention income from transferable securities, or failure to comply with tax thresholds requiring certain transactions to be declared. The tax authorities consider that these failings are the result of simple negligence, rather than a clear intent to defraud.

It’s important to note that you can avoid this surcharge by making a spontaneous adjustment before the tax authorities carry out an audit or issue a formal notice. This voluntary approach demonstrates your good faith and enables you to benefit from more favorable treatment. In addition, for certain taxes and in the event of a first offence, the tax authorities may decide to reduce the surcharge to 0%, particularly if you quickly rectify your situation following notification.

40% surcharge for wilful default

The 40% surcharge penalizes deliberate tax evasion, which is the qualification most frequently used in tax audits. This 40% penalty applies when the tax authorities establish that you have intentionally sought to evade tax. Unlike simple negligence, for which the penalty is 10%, deliberate failure requires proof of a clear intention to evade your tax obligations. The burden of proof lies with the tax authorities, who must gather objective and concordant evidence demonstrating your knowledge of the tax obligation and your deliberate choice not to comply with it.

The distinction between negligence and deliberate intent is based on a number of specific criteria. In particular, the Conseil d’Etat considers the repeated nature of the omissions over several financial years, the relative size of the sums concealed in relation to your declared income, your level of tax knowledge (particularly if you are a professional), and the nature of the transactions involved. A simple misinterpretation of a complex tax law, or a one-off omission, is generally not sufficient to establish fraudulent intent. On the other hand, the systematic concealment of the same category of income year after year is conclusive evidence of deliberate misconduct.

Case law provides numerous concrete examples of situations that qualify as deliberate non-compliance. Typical examples include the repeated omission of capital gains from identified bank accounts, the systematic under-recording of business sales by failing to account for cash receipts, or the recurrent deduction of personal expenses as business expenses. In the field of VAT, the deliberate under-reporting of the tax collected can also fall into this category, and may even constitute VAT fraud punishable by criminal penalties. According to Conseil d’Etat case law, the size of the amounts involved, although not decisive on its own, is a significant factor in assessing the intentional nature of the offence.

The financial impact of this surcharge is considerable. On a tax reassessment of 10,000 euros, the 40% surcharge represents an additional 4,000 euros, plus interest on arrears of 0.20% per month. According to statistics from the Direction Générale des Finances Publiques, the 40% surcharge is applied in around 30% of tax audits resulting in reassessments, making it the most common intermediate sanction. This frequency can be explained by the fact that the tax authorities prefer to apply this penalty when there are serious indications of intent, without however being able to demonstrate the existence of organized fraudulent maneuvers justifying the 80% surcharge.

80% surcharge for fraudulent maneuvers

The 80% surcharge provided for in article 1729 of the CGI penalizes three legally distinct situations: fraudulent maneuvers, abuse of rights and the discovery of a concealed activity. This maximum penalty marks a qualitative break with the deliberate 40% penalty, since it presupposes not only the intention to evade tax, but also the use of sophisticated procedures or organized concealment.

Fraudulent maneuvers are characterized by the use of artificial means intended to mislead the tax authorities. In particular, jurisprudence points to the issuing or use of false invoices, the interposition of shell companies with no real economic substance, the falsification of accounting documents or vouchers, or the creation of fictitious financial flows. These procedures go beyond simple omission or concealment: they involve active organization of the fraud.

Abuse of rights, as defined in article L64 of the French Tax Code, applies to legal arrangements whose sole purpose is to evade tax. The tax authorities must demonstrate that the actions taken are fictitious in nature, or that they were inspired by no motive other than that of evading or mitigating tax charges, by seeking the benefit of a literal application of the law contrary to the legislator’s objectives.

Occult activity, which is dealt with in greater detail in a dedicated section, corresponds to the exercise of an entirely concealed professional activity, without any declaratory steps. This implies a total absence of declarations of existence, income statements and invoices.

The distinction with deliberate failure to comply is essential: whereas the 40% surcharge sanctions the intention to evade tax through deliberate omissions or inaccuracies, the 80% surcharge requires proof of fraudulent organization or deceptive practices. A taxpayer who deliberately underestimates his revenue is liable to 40%; a taxpayer who creates false charges through fictitious invoices is liable to 80%.

This maximum penalty is frequently accompanied by criminal prosecution for tax fraud under article 1741 of the CGI. The threshold for criminal prosecution is generally set at €100,000 in evaded duties, although this criterion is not absolute. Penalties can reach up to €500,000 in fines and 5 years’ imprisonment, or €3,000,000 in fines and 7 years’ imprisonment in the event of aggravating circumstances.

The 40% surcharge for wilful default: conditions and proof

Deliberate tax evasion is the most common form of tax reassessment. The tax authorities must demonstrate your intention to evade tax through objective and concordant elements. A simple clerical error or misinterpretation of a text is not enough. The Conseil d’Etat regularly reminds us that the burden of proof lies entirely with the administration (CE, May 21, 2018, n°408219) and that doubt always benefits the taxpayer.

The burden of proof lies strictly with the tax authorities, for each year and each head of reassessment concerned. It must establish that you were aware of the tax obligation and that you deliberately chose not to comply with it. Evidence may include: the repeated nature of the omissions, the size of the sums involved, your level of tax knowledge or the complexity of the schemes used. In the absence of sufficient evidence for a given year, the surcharge for that year is waived.

Case law has gradually established a hierarchy of indications of deliberate misconduct, according to their probative value. The most decisive elements are: the systematic concealment of income over several years, the use of undeclared bank accounts abroad, or the deliberate and repeated under-reporting of professional income. The fact of being a well-informed professional is an additional indicator, but case law specifies that it is never sufficient on its own to establish deliberate misconduct, and must imperatively be combined with other probative elements characterizing fraudulent intent.

Litigation statistics show that challenges to the 40% surcharge result in total or partial annulment in around 30 to 40% of cases before the administrative courts. The average processing time for such tax disputes is between 18 and 36 months, depending on the complexity of the case, which justifies a rigorous defense strategy right from the rectification proposal phase.

Penalties in the event of discovery of concealed activity

Occult activity refers to the practice of a professional activity that is concealed from the tax authorities. This situation automatically triggers the application of the 80% surcharge provided for in article 1729 of the CGI. The activity is considered to be concealed if you have not carried out any of the compulsory declarations.

Three conditions characterize concealed activity: failure to file a declaration of existence with the business formalities center, failure to file a profit and loss declaration, and failure to issue invoices as required. The combination of these three elements justifies the application of the maximum penalty of 80%.

This qualification has particularly serious consequences. In addition to the 80% surcharge, you are liable to an extended ten-year recovery period and criminal prosecution for undeclared work. The tax authorities may also proceed with ex officio taxation, without the possibility of referring the matter to the departmental tax commission.

How can I effectively contest a surcharge under article 1729?

Contesting a tax surcharge requires a rigorous legal strategy and compliance with strict deadlines. You have 30 days from receipt of the rectification proposal to formulate detailed observations. This first step is crucial if you wish to contest both the adjustments and the penalties. If the disagreement persists after receipt of the tax assessment notice, you have 2 months in which to take your case to the administrative court.

Your defense should focus on two main areas: challenging the tax authorities’ characterization of the situation, or demonstrating the absence of fraudulent intent. It is important to distinguish between disputes concerning the tax base (i.e. the amount of tax assessed) and disputes concerning penalties, which can be handled independently. For the 40% surcharge, you must establish that the error is the result of negligence and not deliberate intent. For the 80% surcharge, you can contest the characterization of fraudulent maneuvers or concealed activity. Before assessment, you can negotiate a reduction in penalties in return for accepting the principle of reassessment.

The intervention of a tax lawyer is often decisive in building a solid argument. We analyze the evidence gathered by the administration, identify legal loopholes and mobilize favorable case law. If the case is referred to the administrative court, an independent judge will review the legality and validity of the penalty imposed. In addition to taking legal action, you can also apply to the local director of public finances for an ex gratia remission or reduction, particularly if your financial situation makes payment difficult.

The success of your challenge depends on a number of objective factors: the quality of the tax authorities’ reasoning, scrupulous compliance with the adversarial procedure, the existence of case law favorable to your situation, and the strength of the evidence provided. A reduction or total cancellation of the surcharge remains possible when the tax authorities have not sufficiently characterized the fraudulent intent or failed to respect your rights of defense. During the contentious procedure, you can request a deferment of payment by providing guarantees (bank guarantee or mortgage). In the event of total or partial tax relief, the tax authorities will pay you interest at the same rate as for late payment (0.20% per month).

Moderation and rebate options

Even after a tax surcharge has been applied, the taxpayer is not without recourse. Indeed, tax legislation provides for mitigation mechanisms that can prove invaluable in certain situations. One of the most important options to be aware of is the remise gracieuse. You can apply directly to the local director of public finance, who has the discretionary power to reduce or cancel penalties.

The administration evaluates these requests according to several criteria:
– Your proven financial hardship
– The good faith shown throughout the procedure
– The exceptional nature of your personal situation

Even before taxes are assessed, you have another option: a tax settlement. This mechanism enables you to negotiate directly with the tax authorities on the amount of penalties applicable. This lesser-known but particularly effective procedure can result in a substantial reduction in the penalties initially set.

It is important to note that requests for an “remise gracieuse” do not interrupt the contentious appeal deadlines. To maximize your chances of success, it is therefore advisable to pursue both the informal and contentious channels in parallel. In practice, the tax authorities more frequently grant partial rather than total remissions, which can nevertheless represent a significant reduction in your tax burden.

These moderation procedures are distinct from, but complementary to, traditional litigation. They can be used jointly to obtain a balanced solution to your tax dispute, particularly when exceptional circumstances justify a more flexible approach on the part of the tax authorities.