The appeals court held that French tax law allows the French tax authorities to conduct this type of document seizure, as being within the framework of the French search and seizure rules (under article L 16 B of the French tax procedure code).
The court rejected arguments that the seizure of documents from foreign-based computer servers violated French and European Union law, and found that data accessible through a computer based at the French premises of the audited multinational entity can be considered as being stored on that computer.
Legislative amendment
In late 2012, the French government proposed amending article L 16 B of the French tax procedure code. See TaxNewsFlash- Transfer Pricing: France - Cross-border implications of exit tax, enhanced tax-investigative proposals
Subsequently, the French government revised the proposed amendment of article L16 B dealing with tax-motivated searches and seizures.
The new version of the legislation allows the French tax authorities to search for evidence of tax evasion where ever relevant documents may be stored and to seize such data— including data housed on servers located outside of France—as long as the French tax authorities have access to such servers from the French premises of the entity being audited by the French tax authorities.
KPMG observation
Considering the recent evolution of French search and seizure procedures, tax professionals with STC Partners* caution multinational entities with operations in France to consider taking steps to prepare for possible searches of their data and records—even those “located” on foreign-based servers—by the French tax authorities.
Also, France is not the only country that has seen expanded authority for such tax-related searches and seizures. Other countries have similarly adopted rules that allow their tax authorities to conduct such searches and seizures. For example, consider a November 2008 decision of the Federal Court of Canada that validated the seizure of documents by the Canadian tax authorities from foreign-based servers.
For more information, contact a tax professional with KPMG’s Global Transfer Pricing Services group (STC Partners*) in France:
François Vincent
+33 (0)1 55 68 6858
Denis Fontaine-Besset
+33 1 535 3870
*STC Partners is a French law firm that is independent from KPMG and its member firms