Legal news

3% tax : No right to make mistakes in case of incomplete or incorrect tax return !

A Ministerial reply of March 7, 2023 (RM Masson JOAN - n°4005) refuses to grant a regularization right to French or foreign companies owning real estate assets located in France that have filed incomplete or incorrect n°2746 tax return and reserves the administrative tolerance resulting from the Ministerial reply “Loncle” of March 13, 2000 to companies that simply fail to complete formalities allowing them to be exempted from the 3% tax.

Pursuant to Article 990 D of the CGI, legal entities (legal persons, organizations, trusts or comparable institutions) that hold, directly or indirectly, real estate assets located in France are, in principle, liable for an annual tax equal to 3% of the market value of such assets.

Many cases of exemption are provided for, in particular, when taxpayers file an annual tax return n°2746 or when they make and respect an engagement to communicate to the French Tax Authorities (“FTA”), upon request, a certain number of information on their real estate assets and their shareholders.

Since a Ministerial reply “Loncle” dated March 13, 2000 (Rép. Loncle, AN March 13, 2000, n°1638), the FTA have accepted that taxpayers, who have not filed either the tax return n°2746-SD or the required engagement, may not be subject to the 3% tax if they undertake to regularize their situation within thirty days following a formal notice from the FTA. However, this tolerance is only applicable to the first request of regularization.

The French Court of Cassation (Cass com., January 31, 2006, n° 02-20.387), had considered that this tolerance measure was aimed at "regularizing the situation of taxpayers who have not filed returns" and therefore did not concern those who had filed "incomplete or incorrect" returns.

Reflecting this case law, the Ministerial reply of March 7, 2023 pursues this idea and specifies that this tolerance measure :

  • Is conditional upon the requirement of good faith of the taxpayer ;
  • Concerns only taxpayers who have not filed the n° 2746 returns or the engagement required by law ;
  • Does not apply to taxpayers who have filed incomplete or incorrect returns.

Finally, a taxpayer who has not filed any return is therefore in a more favorable situation upon receipt of a formal notice by the FTA than a taxpayer who has filed an incomplete or incorrect return. At the most, the latter may benefit, if he is in good faith, from a reduction in late payment interest of 50%, in case of spontaneous regularization, or of 30%, in case of regularization during a tax audit (Article 1727 V of the French tax Code and Article L.62 of the Tax Procedure Handbook).

Léa ZERILLI, Counsel ( with the kind support of Baptiste RICHARD, Trainee