Why the Court of Auditors Wants to Exercise Greater Oversight of the IFI

The Court of Auditors has released its final observations on the real estate wealth tax, noting in particular the need to increase audits.
 

Created by the 2018 Finance Act, the real estate wealth tax (IFI) is levied on real estate holdings by individuals when their net value exceeds €1.3 million. This report recommends providing better support to taxpayers in their administrative procedures, simplifying certain aspects of IFI administration, and strengthening mechanisms for monitoring and detecting fraud.

In 2022, nearly 164,000 households received a tax notice totaling €1.8 billion. This tax represents only a small portion of the tax burden on household wealth, which is estimated at €117 billion in 2022. It is, however, a dynamic tax whose revenue has been growing steadily since 2018 (an average of +14.2% per year).

The IFI tax base consists of real estate held directly or indirectly. This definition gives rise to complex rules designed to prevent assets from evading the tax, for example when they are held through corporations or real estate investment vehicles (“paper real estate”). The legislature has acknowledged this complexity by providing for a defense based on ignorance.

The process of declaring owned properties is facilitated by access to tools that assist in assessing their value. However, this remains a delicate exercise, one that the tax authorities could support even better—for example, by providing taxpayers with data on price trends in their immediate vicinity. This type of approach would help prevent the temptation to “undervalue” declared assets during periods of rising real estate prices.

Integrating the administration of the IFI with that of the income tax (IR) allows for easy, efficient, and more secure collection. However, the IFI’s administrative cost ratio—which compares the expenses incurred for its administration to the revenue collected—appears high, at 2.66% in 2022 compared to 1.05% for income tax (IR). The tax administration should better identify and track these costs and ensure that IFI administration becomes more efficient.
IFI audits have been on the rise since 2020 but remain infrequent. National queries generated through data mining help identify high-risk cases, but further progress is needed to optimize audit scheduling. Several key areas remain poorly or inadequately covered by detection and regulatory tools. In particular, the tax administration lacks the information needed to audit property held through real estate investment partnerships.

Just as with other household taxes, the tax gap and IFI fraud are not subject to estimates, even though such estimates would be essential for implementing a proportionate strategy to combat tax evasion and fraud. Although, since 2018, the number of IFI taxpayers who have returned to France after leaving the country has now exceeded the number of departures, no direct causal link can be established between this trend and the creation of the IFI. Furthermore, recent studies have found no evidence of a shift in wealth toward movable assets.

According to Pierre Moscovici, First President of the Court of Auditors: “Proper management of the IFI is essential to tax compliance. While it is collected efficiently by the tax administration, oversight measures must be strengthened, and fraud risks better identified through the use of artificial intelligence and the analysis of an ever-increasing volume of data.”