26th August 2021
France – along with other countries – has been looking at ways to gather new information and detect fraud as part of a global crackdown on tax avoidance. This means that tax risks for recruitment agencies are increased when placing contractors internationally. A simple administrative error at any point in the supply chain could expose your firm to significant risks. Recruitment agencies need to be fully aware and compliant with all rules at all times to keep themselves safe.
So what do you need to know about contractor recruitment tax risks in France?
In 2020 the finance bill was passed in France which allows, on a trial basis, tax and customs authorities to gather information from online platforms such as websites and social media accounts to initiate customs and tax inquiries.
Despite the bill passing in 2020, official guidelines by the French Tax Authorities (FTA) and French Customs Authority (FCA) have only just been published.
Innovations in managing data
With so much data to process, the starting point for this bill is how to manage it. Tax returns are now mostly filed electronically and held in databases that can be exchanged with different countries automatically. The FTA and FCS will be increasing their data mining and use of artificial intelligence to aid the detection of potential breaches via predictive analysis based on the taxpayer’s behavior modelling algorithms.
The goal set by the French government is to increase the share of tax audits by artificial intelligence to 50% by the end of this year. A department has been created and an information processing tool is being developed to work alongside internal tax databases.
Even with all that data, the challenge is that authorities only have the data already stored from submitted tax returns to go on. If that data is incorrect to begin with then it makes it far harder to detect tax avoidance. The theory is that harvesting data from external sources will enhance the quality of their data and, as a result, their analysis. For example, if a business sells goods in France from its website, that can be cross-referenced with their tax return.
Harvesting data from your online presence
Any website that allows a transaction or contact for the sale of goods or services along with all social media platforms are covered by this bill. Essentially as long as the information is in the public domain, i.e. doesn’t require a password to access it, then it falls within the scope of this bill. That includes photographs, documents, videos etc. What that also means is that the volume of information that can be collected is also restricted by an individual’s privacy settings on their social media.
Social media and websites can be targeted under the following purposes:
- running an undeclared professional activity
- income tax avoidances by French residents
- unauthorised manufacture, holding, transport or sale of alcohol, tobacco, the fraudulent sale of precious metals and transfers linked to customs offences.
Any information collected that doesn’t relate to any of these offences will be deleted.
As with all of these initiatives, there’s always a concern about privacy. There have been a number of safeguards put in place. The first is that only FTA and FCA authorities are allowed to collect, process and store any information.
The next covers data storage. Any information collected which is clearly unrelated needs to be destroyed after five days. If there is an indication of tax or customs offences then data may only be stored for one year, unless the information is used in an investigation and then it may be kept until the case has finished. At a basic level, this means that all initial processing needs to happen within five days.
Two-stages for this experimental system
It’s been made clear that this technological development is in an experimental stage, planned to take place over three years. At that point a full evaluation will be sent to the French parliament.
There are two stages for this system:
- Learning stage
This is when the technology – the collection and analysis tools will be designed and tested. 100 companies and a dozen individuals will be used as samples. At this stage tax or customs inquiries won’t be triggered.
- Operational Stage
With the technology fully functioning, the tools will be deployed to collect data from social networks and websites.
This is a prime example of how international authorities are becoming more creative with the measures they’ll take to clamp down on tax fraud. If successful, it will undoubtedly see similar measures put in place worldwide. This heightens the tax risk recruitment agencies face when placing contractors internationally and highlights why it’s so critical that agencies ensure their contractors are compliant, no matter where they are in the world.
If you want to discuss your situation with our international experts get in touch.