Is a taxpayer who disagrees with Bercy necessarily acting in bad faith?

The recent decision by the Paris Administrative Court of Appeal – in the high-profile Médiapart case – raises the question of extending the scope of the 40% surcharge for deliberate breaches of contract..

Médiapart had fought openly to ensure that the reduced VAT rate for the print media would apply regardless of the medium of distribution, whether physical or digital. Its efforts were finally crowned with success and led to a change in the law. Unfortunately, this change came at a time when Médiapart was being audited… At the end of the audit, the tax authorities demanded payment of the VAT resulting from the rate differential, and added penalties for deliberate failure to comply.

The Paris Administrative Court upheld the adjustments, but discharged the 40% surcharges on the grounds that Médiapart, which considered the rate differential unconstitutional and unconventional, had applied the reduced rate ‘in full transparency with the tax authorities’.

This ruling was consistent with the jurisprudence that there is no bad faith when the rule of law is not certain (1).

In the Médiapart case, the Paris Administrative Court of Appeal changed the paradigm and clearly ruled that when a taxpayer is in open disagreement with the administration, it must pay and claim. Failing that, they are ‘unequivocally and deliberately demonstrating their intention’ (2) to evade a tax they consider unfounded.

This decision raises a number of questions: the semantic shift resulting from Order 2005-1512 of 7 December 2005, which replaced the old term ‘bad faith’ with ‘deliberate failure to comply’, means that the surcharge for deliberate failure to comply could be applied to a taxpayer who, in good faith, disagrees with the tax authorities and enters into discussions with them prior to any tax audit.

We will follow with interest the outcome of the appeal lodged by Médiapart. However, there is no certainty as to the outcome: didn’t the Conseil d’Etat recently rule (3) that the fact that the administration refrained from questioning the application of a reduced rate of VAT during an audit does not prevent it from questioning the application of the reduced rate during a subsequent audit, by arguing that the taxpayer’s attitude is evidence of a deliberate failure to comply?

In the meantime, in the event of disagreement with an uncertain standard, the faint-hearted taxpayer will pay (if he can) before claiming. This will prevent him from being regarded ‘unwittingly’(4) as having deliberately demonstrated his intention to evade the tax in question.