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Social Networks: The Next Tax Fraud Hunting Ground for the French Tax Authorities?

Updated: Jul 9, 2020

Gérard Darmanin

Me Stéphanie Barreira, FBT Avocats SA

The 2020 Finances Act has just authorized the tax administration to collect and use data freely accessible on social networks and digital platforms to detect tax fraud.

The development of social networks gives thus the French tax authorities access to an abundance of information that they can now draw on, bringing to bear artificial intelligence and algorithms.

The expansion of the tax administration arsenal of investigation

In recent years, the tax administration saw an expansion of its arsenal of investigation and control capacities, with disappointing results.

In 2013, the Court of Auditors issued a fairly severe report regarding the quality of tax audit in France, characterizing it as insufficient and outdated.

Confronted with this, the tax administration had to enhance its oversight policies in order to effectively identify criminal behavior, which has become increasingly sophisticated and complex. It was inevitable that this overhaul of fiscal control would include the development of numerous software tools such as “data-mining”, defined as the use of massive data analysis systems and tools in order to detect fraudulent behavior.

On 13 September 2018, in a speech in support of the adoption of the Anti-Fraud Act (Law on the Fight against Tax Fraud ), Mr. Gérard Darmanin, Minister of Action and Public Accounts, noted the ineffectiveness of tax fraud detection and the insufficient use of tax and social data.

Data-mining was then proposed as the perfect response to the insufficiency observed.

Applied to tax audit, data-mining makes it possible to search for fraudulent behavior through computerized profiling using a broad spectrum of financial and tax data derived primarily from:

- information gathered from national and foreign administrations, especially through international exchange of information; and

- information from social services, from examining files made available to tax agents, such as bank account openings and closings documentation or life insurance policies.

The exploitation of public data available on social networks was announced by the French Government as a priority experiment to be implemented in 2019. The Minister acknowledged unambiguously that tax and custom administrations had not yet ventured into the use of publicly available data “both because it involves sensitive data, legally protected, and because its processing requires tools that are particularly well developed.

Thus, the tax administration is now authorized – experimentally, for three years – to collect and use, by means of computer processing, content freely accessible on the Internet, of users of on-line platforms, in order to detect undeclared economic activities (especially those linked to the illicit production, possession, sale or transport of tobacco, alcohol and narcotics) and false tax residences. This content must clearly have been made public by the users of these sites. Particularly targeted are contact platforms involving several parties for the purpose of selling something, providing a service or the exchange or the sharing of content, of goods or of services. In practice, this involves social networks (e.g. Facebook, Instagram, Twitter) as well as sites for selling goods and services (e.g. Boncoin, eBay).

Given the implication of the measure for the right to privacy and the possibility of sweeping up sensitive data in the process, the information so collected may not be outsourced by the State. At the latest, five years after having gathered data that is sensitive or without any link to the targeted offense, the French administrations will have to destroy such data. The data will have to be analyzed within thirty days and destroyed if they do not appear to be pertinent.

It is worth recalling that social networks are currently being used within the context of legal investigations. In October 2017, the French headquarters of Walt Disney had the unpleasant surprise of being served with a search warrant regarding taxes justified by information gathered from LinkedIn. The analysis of the profiles on this social network of several employees revealed, according to the tax authorities, the carrying out on French territory (and on behalf of Walt Disney Company Limited registered in the United Kingdom) of “Disney licensing activities, commercially strategic for the Group” and the securing of major partnerships with international brand names in the food sector. For the tax authorities, these were well founded indications of the existence of a full commercial cycle in French territory, generating taxes that normally due in France.

The emergence of social networks, as well as the narcissism of the taxpayers who are keen to present themselves in the best possible light, could thus constitute a precious resource for the French tax authorities. We might note however that this information alone cannot trigger a tax audit by the administration, but it would nonetheless suffice to encourage the tax authorities to undertake an investigation by mobilizing its resources, for example its right to communicate with a third party.

This experiment is taking place within the context of a reinforcement of the fight against tax fraud, which reinforcement will thus have the opportunity to exploit widely and systematically taxpayers’ personal data.


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