The novel concept of mini-abuse of law

Newsletter - February 2020

On 1 January 2020, an extension was made to the procedure relative to the abuse of tax law by fraudulent evasion of the law. Prior to that, abuse of law was determined only where the transaction performed was solely driven by a tax-related interest (LPF [Tax procedures manual] Art. L.64). As part of the effort to counter tax evasion and tax fraud, the law extended this provision to transactions that are not solely tax-related, but that are chiefly tax-related. The taxation authority provided a commentary on this new procedure in an update to the BOFiP database on 31 January 2020.

Scope: Extension of the procedure relative to the abuse of law

The new definition of the abuse of law, more commonly referred to as a “mini-abuse of law,” enables the taxation authority to reject transactions performed for a purpose that is chiefly tax-related for being abusive (LPF, Art. L.64 A).
The taxation authority is entitled to reject acts – for the reason that they are not binding on it – that have as their chief motivation, in seeking the benefit of a literal application of laws and regulations or decisions relating to the purposes sought by their perpetrators, the evasion or reduction of the tax charges that the entity would typically have had to incur in light of its situation or its actual business activities, if such acts had not been performed (LPF, Art. L.64 A).
The authority emphasises that this new provision is not designed to prohibit the taxpayer from choosing the legal framework that is most favourable in tax terms, as long as the choice or the conditions that allow it do not come across as somehow artificial.
The fact that the taxpayer opts for the most advantageous solution in tax terms does not per se suggest that the choice represents fraudulent evasion of the law if it appears that the legal acts on which this solution is based comply with the reality of the situation (decision of the French Council of State 16-6-1976 no. 95513). The conditions that created the possibility of being in the position to apply this option, however, may be abusive and may cause the authority to implement the procedure relative to the abuse of tax law (decision of the French Council of State 3-2-1984 no. 38230).
With regard to those acts that may be rejected, the authority specifies that they may be in writing or not in writing (verbal lease, for instance), and may be unilateral, bilateral or multilateral: what it comes down to is any act or deed that displays its perpetrator’s intention and produces legal effects.

Conditions of Application

Two factors must be present to demonstrate an abuse of law, whether the acts to be penalised are solely or chiefly tax-related. They are:
• an objective factor: use of a law or regulation concerning the intentions of the perpetrator; and
• a subjective factor, i.e., for the acts specified by the new Article L.64 A of the LPF, the chief intention to evade payment of tax.

The objective criterion: the literal application of the law

For the taxation authority, the term “law” includes not only the national laws and the regulations that define how the law is to be implemented (typically decrees and orders) and international tax treaties, but also – under certain conditions – administrative instructions published in the BOFiP (official bulletin on public finance).

The subjective criterion: the purpose being chiefly tax-related

To reject an acts that runs counter to the rationale or purpose of the applicable tax law, the authority must also demonstrate that the chief motivation for this act is to evade or reduce the tax charges that the entity would typically have had to incur in light of its situation or its actual business activities, if such acts had not been performed. Where the taxation charge that would typically apply is not changed by the act under consideration, such act would not constitute an abuse of law (decision of the French Council of State 5-3-2007 no. 284457).
As in its commentaries on the procedure relative to the classic abuse of law, the authority explains that to evade or reduce the tax charges may take the form of reducing a tax liability or of unduly receiving a tax credit, or it may abusively increase a loss-making situation.
The concept of chief motivation, as such, is broader than the concept of solely tax-related purpose, as that term is defined in Article L.64 of the LPF. The authority appears to propose that it should examine the chiefly tax-related purpose using a quantitative approach that involves comparing the tax advantage and the non-tax-related advance that are obtained by a particular transaction. A transaction that produces a negligible non-tax-related advantage (e.g., a small cash-flow advantage) would, in the eyes of the authority, continue to be analysed under Article L.64 of the LPF.
This measure could have significant impacts. One issue is how to define a purpose that is chiefly tax-related. It would involve attributing the motivations – outside the tax realm – that led the taxpayer to choose the solution that is least costly in tax terms. This non-tax-related advantage could be difficult to quantify.

Implementation of the Procedure

Start date of application of the “mini-abuse of law”

This measure would apply to reassessments served on and after the 1 January 2021 concerning acts performed on and after 1 January 2020.


The advance ruling procedure set forth in Article L.64 B of the LPF is extended to the procedure relative to “mini-abuse of law.” The advance ruling makes it possible to assess the scope of a transaction and to obtain a response from the taxation authority relating to its compliance. The response provided by the authority is then binding on the authority in case of an audit.
The competence of the committee on abuse of tax law is extended to the procedure relative to abuse of law set forth in Article L.64 A of the LPF. In this connection, the authority explains that matters are referred to the committee and it produces its determinations under the same conditions as for the procedure set forth in Article L.64 of the LPF.


Unlike the procedure relative to the classic abuse of law, the mini-abuse of law does not entail automatic application of the penalties provided by law. Only the increases specified in the ordinary law apply.
On the other hand, the taxation authority may apply penalties for insufficiencies, omissions or cases of inaccuracy, if it can justify them with respect to the factual circumstances and the legal circumstances pertaining to the matter under review, at the rate of 40% for deliberate breaches and 80% for fraudulent dealings.

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