The term “mini abus de droit fiscal” is used by tax practitioners to refer to the simplified procedure for abuse of tax law provided for in article L64 A of the French Tax Procedures Code (Livre des Procédures Fiscales). This procedure, which is distinct from the classic abuse of tax law under Article L64, applies when the duties evaded do not exceed a tax threshold set at €200,000 for income tax and corporation tax. Although it always requires consultation of the Comité de l’abus de droit fiscal, this procedure has specific procedural features that you need to understand in order to secure your tax operations and anticipate the risk of tax reassessment.

What is Mini Abus de Droit Fiscal?

The term “mini-abuse de droit fiscal” is commonly used to describe the special application of the abuse de droit procedure set out in article L64 of the French Tax Code (Livre des Procédures Fiscales), when the planned reassessments are below certain thresholds. Although unofficial, this name reflects a distinct procedural reality governed by article L64 A of the LPF.

Article L64 of the LPF defines two forms of abuse of tax law. The first paragraph deals with fictitious acts or acts that conceal the true scope of a contract (abuse of rights by simulation). The second paragraph punishes the literal application of texts contrary to the objectives pursued by their authors (abuse of rights by fraud). In both cases, the principle remains that the tax abuse committee must be consulted prior to any tax reassessment.

However, article L64 A of the LPF provides for an exception to this prior consultation requirement when the duties evaded do not exceed certain amounts. For direct taxes, this threshold is set at 100,000 euros per tax year. For registration duties and land registration tax, the threshold is 50,000 euros per deed or transfer. Below these amounts, the tax authorities can directly rectify your tax situation without referring the matter to the advisory committee, which explains the use of the term “mini abus” to designate this simplified procedure.

Mini Abus Qualification Criteria

Three cumulative conditions must be met in order to characterize an abuse of tax law within the meaning of Article L64 of the Livre des Procédures Fiscales. Firstly, you must have carried out acts which, taken individually or in series, have an exclusively tax-related purpose. Secondly, these acts must run counter to the objectives pursued by the legislator, thus constituting tax fraud. These two qualification criteria remain identical whatever the applicable procedure. What distinguishes “mini abuse” lies in the procedural arrangements: when the amount of duties evaded remains below the threshold of 200,000 euros stipulated in article L64 A of the LPF, the administration may dispense with referring the matter to the Advisory Committee on Abuse of Tax Law.

The tax authorities carefully examine the economic reality of your operations. It analyzes whether your management choices have sufficient economic substance and meet legitimate business objectives, or whether they are merely a tax artifice designed to obtain the benefit of a literal application of the law contrary to the legislator’s intention.

Differences between Mini Abuse and Classic Abuse of Right

Contrary to popular belief, there is no legal distinction between a “mini abuse” and a “classic abuse of rights”. Theabuse de droit procedure remains the same, but its application varies according to the amounts involved. Article L64 A of the Livre des Procédures Fiscales provides for specific procedural arrangements when the duties evaded do not exceed certain thresholds.

These thresholds determine the conditions under which the tax abuse committee is consulted. Where the amount of duties recovered remains below the amounts set by law, the tax authorities may initiate the procedure without first referring the matter to the advisory committee. The aim of this procedural simplification is to lighten the processing of smaller cases, while maintaining the essential guarantees for taxpayers.

Whatever the applicable procedure, you retain all your rights of defense. The main difference lies in the absence of a prior advisory opinion for amounts below the thresholds. However, you still have the option of contesting the reassessment before the administrative courts and putting forward all your legal and factual arguments.

Applicable thresholds

Article L64 A of the Livre des Procédures Fiscales sets a threshold of 200,000 euros for the application of the mini abus de droit. This amount applies to duties evaded in respect of income tax and corporation tax. These thresholds are set by decree and, contrary to popular belief, are not subject to frequent change. You need to know precisely what these amounts are to assess whether your transactions fall under the simplified mini-abuse procedure or the classic procedure requiring referral to the Advisory Committee.

The amount of duties evaded is assessed on a transaction-by-transaction basis, and not on an overall basis for the entire tax year. The tax authorities cannot add up several separate transactions to reach the 200,000 euro threshold for the mini abuse de droit. This assessment rule is an important guarantee for you, as it limits the use of this simplified procedure to transactions where the financial stakes remain below the legal threshold.

Consequences and Sanctions of Mini Abus de Droit

If the tax authorities deem you to have misused your rights, they will adjust your tax situation. Tax evaded will be claimed back, with interest on arrears at a rate of 0.20% per month, i.e. 2.40% per annum as of January 1, 2024. Interest accrues from the date on which the tax should have been paid to the date of collection.

The surcharge provided for in Article 1729 of the French General Tax Code applies to all situations of abuse of rights, including when the thresholds for mini-abuse have been reached. This penalty can reach up to 80% of the recalled duties, which represents a particularly dissuasive sanction. However, this rate is a maximum, and the tax authorities have the option of moderating this increase according to the circumstances of the case and the degree of seriousness of the taxpayer’s behaviour.

You must therefore carefully assess the risks before implementing certain tax strategies. The accumulation of tax reminders, late payment interest and surcharges can represent a considerable financial burden, justifying a thorough prior analysis of the compliance of your operations.

Available remedies

If you wish to contest a tax reassessment based on a mini abuse de droit, you have the usual means of recourse. In accordance with article R*196-1 of the Livre des Procédures Fiscales, the first compulsory step is to file a contentious claim. You must lodge this claim by December 31 of the second year following the year in which the disputed tax was levied.

If your claim is rejected in whole or in part, you can take your case to the administrative court within two months of being notified of the administration’s decision. You still have the option of contesting both the principle of the adjustment and its amount before the competent courts. Before initiating legal proceedings, you may also request the intervention of the mediator of the Ministries of Economy and Finance to seek an amicable solution.

Although the mini-abuse de droit procedure does not require prior referral to the Comité de l’abus de droit fiscal, you can ask to be consulted during the litigation phase. This option offers an additional guarantee, as the committee issues an opinion on the validity of the tax authorities’ characterization of the abuse of rights. Although this opinion is not binding on the judge, it is an important element in the assessment of your defense.

Tax Prevention and Security Strategies

Preventing the risk of mini abuse of rights requires an in-depth analysis of your operations. You must systematically document the economic motivations behind your management choices. This documentation is essential evidence in the event of a tax audit.

The support of a specialized tax lawyer ensures the security of your arrangements. A qualified professional analyzes the compliance of your operations with case law and administrative positions. He identifies areas of risk and proposes legally sound alternatives.

The documentation of your operations must also demonstrate their real impact on your net taxable profit. Rigorous accounting traceability and detailed economic justification strengthen your position in the eyes of the tax authorities.

For cross-border operations, you also need to take into account tax rules in the European Union. Compliance with European directives is an additional argument for demonstrating the legitimacy of your tax choices and avoiding any qualification as abuse of rights.

Importance of Economic Substance

The economic substance of your operations is the decisive criterion for escaping classification as a mini-abuse of rights. You need to demonstrate that your choices meet legitimate commercial, financial or organizational objectives, in line with the international standards established by the OECD as part of the BEPS (Base Erosion and Profit Shifting) project, in particular Action 6 on the abuse of tax treaties.

The case law of the Conseil d’Etat has gradually refined the criteria for assessing economic substance. The evidence is based on several factors: the reality and traceability of financial flows, the existence of qualified human resources and material resources commensurate with the activity, strategic decision-making at the level of the structure concerned, and the overall coherence of your corporate strategy with the operations carried out. For example, a company that spends on research and development with dedicated teams and equipped laboratories has undeniable economic substance, unlike a structure with no employees and no premises of its own. The European Union’s Anti-Tax Avoidance Directive (ATAD), with its General Anti-Abuse Clause (GAAR), reinforces this substance requirement by enabling member states to challenge artificial arrangements. The more robust and well-documented the economic substance of your case, the lower the risk of it being challenged by the tax authorities.

Legal developments and outlook

Case law on mini abus de droit is constantly evolving. The courts are gradually refining the qualification criteria and specifying the limits of this procedure. You need to keep abreast of these developments to adapt your tax strategy.

European courts are also exerting increasing influence in this area. European Union law provides a framework for Member States to combat tax optimization. This supranational dimension complicates the legal analysis and calls for specialized expertise.

The mini abuse of tax law is a powerful tool in the hands of the tax authorities. Mastering it requires in-depth knowledge of tax law and constant legal monitoring. The support of a specialized tax lawyer is essential to navigate this complexity. Anticipation and rigorous documentation of your operations remain your best protection against this major tax risk.