Tax penalties: the 10%, 40% and 80% surcharges explained

Quick answer. Three main surcharges apply to tax failures: 10% for an ordinary late filing, 40% for a return not filed after a formal notice or a deliberate breach, and 80% for fraudulent practices, abuse of law or an undisclosed activity. They are added to the reassessed tax and to the late-payment interest.

When a company director receives a proposed reassessment, the first figure they look at is the additional tax claimed. That is rarely the most painful item. What turns a manageable adjustment into a heavy sanction is the surcharge rate applied: moving from 10% to 40% almost doubles the bill, and the jump to 80% makes it explode. Understanding the logic behind these rates allows you to anticipate, react quickly and, in some cases, have a penalty reclassified to a lower level.

This article breaks down the three main rates, their legal basis, the situations that trigger them and the room for manoeuvre you actually have.

First confusion to clear up. Late-payment interest and the surcharge are two distinct items that add up.

Late-payment interest, set out in Article 1727 of the French General Tax Code, is 0.20% per month, i.e. 2.40% per year. It is not a sanction: it compensates the cash-flow loss suffered by the Treasury, which collected the tax late. It applies almost automatically as soon as additional tax is due, regardless of any fault.

The surcharge, by contrast, is a sanction. It punishes a behaviour: delay, negligence, intent to mislead. Its rate is where most of the financial stakes lie. The same reassessed amount may bear a surcharge of 10%, 40% or 80% depending on the classification chosen by the tax authority.

Keep this principle in mind: on a given reassessment, you always pay the principal, almost always the late-payment interest, and on top of that the applicable surcharge. The three add up.

This is the most common sanction in a company's everyday life. It falls under Article 1728 of the FTC and applies to returns filed late or not filed.

The 10% surcharge applies where there has been no formal notice, or where the return is regularised within 30 days of a formal notice from the tax authority. This is typically the case of a tax return filed a few days or weeks late, with no intent to conceal.

At this level, the authority has nothing to prove about your state of mind. The mere finding of a delay is enough. The good news is that this rate remains the floor as long as the file reveals neither a deliberate breach nor a fraudulent manoeuvre.

Moving to 40% marks a change in nature. It no longer sanctions a mere delay, but a culpable behaviour. Two distinct bases can lead to it.

Under Article 1728, the 40% surcharge applies where the return is still not filed within 30 days of receiving a formal notice. You were warned, the deadline ran, and nothing was regularised.

Under Article 1729, the 40% surcharge sanctions a deliberate breach: an understatement, an inaccuracy or an omission in a return that was actually filed, but which the authority considers intentional. This is where a large share of penalty disputes are concentrated, because the line between a good-faith error and a deliberate breach is narrow.

A key point on which many cases are won: the burden of proof lies with the tax authority. It is up to the authority to establish the deliberate nature of the breach, not up to you to prove your good faith. This rule, set by case law and administrative doctrine, is a real ground for challenge. To understand how this classification interacts with an act the authority deems contrary to the company's interest, see our analysis of the abnormal act of management and risky transactions.

The 80% rate targets conduct that the authority regards as fraudulent or deliberately organised to escape tax.

Under Article 1728, the 80% surcharge applies on the discovery of an undisclosed activity: an activity carried out without registering with the tax services or the business formalities centre.

Under Article 1729, the 80% surcharge sanctions three situations: fraudulent practices, abuse of law within the meaning of Article L. 64 of the Book of Tax Procedures, and price concealment. For abuse of law, this 80% surcharge is however reduced to 40% where it is not established that the taxpayer took the main initiative for the act or was its main beneficiary. These classifications presuppose an arrangement, a characterised intent to mislead, positive acts designed to throw the authority off track. On the ground of abuse of law, the line between legitimate planning and a sanctionable arrangement deserves close reading: we set it out in our article on tax abuse of law and the mini-abuse rule in practice.

Here too, it is for the authority to demonstrate the fraud or the manoeuvre. The evidentiary bar is higher than for a deliberate breach, which opens up angles of defence.

• 10%: forgotten or late filing of a return (tax package, VAT, results) without a reminder, or quick regularisation after a formal notice.
• 40% (1728): persistent silence 30 days after an unanswered formal notice.
• 40% (1729): understated revenue, fictitious or personal expenses deducted, classified as intentional by the authority.
• 80% (1728): commercial or professional activity never declared, discovered during an audit.
• 80% (1729): artificial arrangement, false invoices, organised concealment of part of a sale price.

In the cabinet's practice, the most frequent issue is not the reassessed amount, but the classification. The same VAT or corporate income tax reassessment may carry a 40% surcharge rather than mere late-payment interest if the company cannot document its good faith. The difference quickly runs into thousands of euros.

Our conviction is simple: the quality of accounting and tax records, kept as you go, is the best protection against reclassification as a deliberate breach. A clean file, accessible supporting documents, explained tax choices: this is what defuses the argument of intent. It is one of the concrete benefits of rigorous bookkeeping and accounting review.

Many directors believe that a good-faith error can never be sanctioned beyond late-payment interest. That is false. If the authority considers the error too gross, repeated, or relating to a point the director could not ignore, it may attempt a 40% surcharge for a deliberate breach.

The real risk is therefore not the error itself, but the inability to demonstrate its unintentional nature. Without traceability, without documents, without a credible explanation, good faith becomes hard to assert. This mechanism is frequently found in disposals, where some errors are costly: we list them in our article on the director's tax mistakes when selling a business.

A company subject to corporate income tax had deducted, over two financial years, expenses mixing genuine business costs and personal expenses of the director, with no clear distinction in the accounts. During the audit, the authority disallowed the personal expenses and applied a 40% surcharge for a deliberate breach, considering that the mixed nature could not be ignored.

For lack of records establishing a good-faith split, the company could not bring the surcharge down to mere late-payment interest. Accounts clearly distinguishing the nature of expenses, kept from the outset, would probably have been enough to defend the simple error. The lesson is operational: it is not the figures that decide the rate, it is the quality of the audit trail.

Receiving a proposed reassessment carrying a surcharge is not a foregone conclusion. Here are the steps to follow.

1. Read the reasoning. The penalty must be reasoned by the authority: it must state the legal basis (1728 or 1729) and the facts justifying the rate. Insufficient reasoning is a ground for challenge.
2. Meet the response deadline. You generally have a deadline to reply to the proposed reassessment. This deadline is strategic: our guide explains how to respond to a proposed reassessment within 30 days.
3. Gather evidence of good faith. Accounting records, correspondence, supporting documents, advice received: any element showing the absence of intent.
4. Challenge the classification, not just the amount. Asking for a 40% surcharge to be reclassified as mere late-payment interest is often more rewarding than arguing the principal.
5. Consider the discretionary route. A discretionary remission or a settlement may be requested, in particular in view of the company's situation.
6. Get assistance. Support in corporate taxation early in the procedure significantly improves the quality of the response.

To classify a deliberate breach or a manoeuvre, the authority relies on concrete indicators: the repeated nature of the anomaly, its scale relative to turnover, the absence of supporting documents, the director's presumed knowledge of the rule, the existence of acts designed to mask reality. An isolated, marginal point is unlikely to be classified as deliberate; a systematic and significant anomaly, on the contrary, attracts the higher rate. This reading aligns with that of a tax audit of companies, whose preparation largely determines the outcome.

Some situations call for heightened vigilance.

The shareholder current account is a sensitive area: poorly documented movements may be reclassified and lead to reassessments carrying surcharges. Its management deserves particular attention, as we explain on the taxation of the shareholder current account.

Structuring legal transactions (restructurings, distributions, holding arrangements) are by nature scrutinised through the lens of abuse of law. Upstream legal advice secures the classification and reduces exposure to the 80% rate.

Finally, the accountant's role in preventing these risks is central: regular bookkeeping, review and early warning are part of the engagement, as our overview of the role of the chartered accountant recalls.