In a decision dated May 26, 2021 (n° 2021-908 QPC), the French Constitutional Council (i.e., “Conseil Constitutionnel”) ruled that the fine provided for in article 1737, I-3 of the FTC for failure to issue invoice was contrary to the French Constitution.
Article 1737, I-3 of the FTC punishes the failure to raise an invoice with a fine of 50% of the amount of the transaction, reduced to 5% when the taxpayer provides proof of the regular accounting of the transaction within the 30 days of a formal notice.
The Constitutional Council was seized of a question regarding the constitutionality of this provision by the French Supreme Administrative Court (i.e., “Conseil d’Etat”) on February 26, 2021 (n° 443476 dated February 24, 2021).
On May 26, 2021, the Constitutional Council responded to this question by declaring the unconstitutionality of Article 1737, I-3 of the FTC, based on the fact that the latter is not compliant with the principle of proportionality of penalties.
The Constitutional Council first recalled that the goal, of constitutional value, pursued by the legislator when introducing this fine was the fight against tax fraud, through the repression of behaviors aiming at obstructing the control of the accounts, both of the seller and of the purchaser, and the collection of the taxes to which they are subject.
However, the Constitutional Council noted :
- the absence of an upper limit of the amount of the fine as well as the fixed rate of the latter (i.e. 50% or 5% depending on the case);
- the fact that the 50% fine was still due if the supplier did not provide proof of the accounting within thirty days of the tax authorities’ formal notice, even though the transaction had been properly accounted for;
- the application of the 5% fine even if the supplier could prove that the transaction had been properly recorded, allowing the French Tax Authorities to proceed to the tax audits.
The Constitutional Council concludes that Article 1737, I-3 of the FTC may give rise to a penalty that is manifestly disproportionate to the seriousness of the breach, as well as to the advantage that may have been derived from it, and therefore contravenes to the principle of proportionality of penalties.
This provision is therefore declared contrary to the Constitution.
However, in order to avoid excessive consequences due to the immediate repeal of Article 1737, I-3 of the CGI, the Constitutional Council decided, in application of the second paragraph of article 62 of the French Constitution, to postpone the date of the repeal of the contested provisions until December 31, 2021. The Constitutional Council specifies in this respect that the measures taken before this date in application of these provisions cannot be challenged on the basis of this unconstitutionality.
This decision brings up to date the question of the constitutionality of other penalties provided for in the field of VAT, in particular the 5% fine for failure to self-assess French VAT under the reverse charge mechanism provided for in article 1788 A, 4 of the FTCI when the taxpayer is authorized to deduct it.