When the Court of Auditors Puts the IFI Under the Microscope

The IFI, the well-known Real Estate Wealth Tax that replaced the ISF (Wealth Tax) in 2018, taxes real estate holdings by individuals when their net worth exceeds 1.3 million euros.
 

The process of declaring assets is made easier by access to tools that help assess their value. However, to prevent undervaluation, the Court of Auditors recommends, in its latest report, providing better support to taxpayers throughout the process, simplifying certain aspects of IFI administration, and strengthening fraud detection and control mechanisms.
 

"If tax revenue is collected effectively by the tax authorities, audit efforts must be stepped up and fraud risks better identified through the use of artificial intelligence and the analysis of an ever-increasing volume of data," explains Pierre Moscovici, president of the Court of Auditors.
 

According to Moscovici, the tax authority could provide even better support, for example by providing taxpayers with data on price trends in their immediate environment.
 

In 2022, nearly 164,000 households received tax bills totaling 1.8 billion euros. This tax represents only a small portion of the total tax burden on household wealth, which is estimated at 117 billion euros in 2022. However, it is a dynamic tax whose revenue has been growing since 2018 (an average of +14.2% per year), driven by rising real estate prices in France.
 

However, the decline in real estate prices is expected to reverse this trend in the coming years. Another issue raised by the Court of Auditors is that the IFI tax base consists of real estate held directly or indirectly through entities such as SCIs, SCPIs, and SCs. This definition leads to complex rules designed to prevent properties from evading the tax, for example, when they are held through corporations or investment vehicles such as OPCIs or SCPIs. The legislature has, in fact, acknowledged this complexity by providing for a defense based on ignorance of the law.
 

Integrating the administration of the IFI with that of income tax (IR) enables easy, efficient, and more secure collection. However, the IFI’s cost-to-revenue 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 relatively infrequent, the Court notes. National inquiries resulting from data mining (the use of AI to analyze data) help identify high-risk cases, but further progress is needed to optimize the scheduling of audits.
 

Several issues remain poorly or inadequately addressed by detection and regulatory tools. In particular, the tax authorities lack the information needed to monitor assets held through real estate investment companies.
 

Just as with other taxes levied on households, there are no estimates of the tax gap or IFI fraud, 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 moving abroad has 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 financial assets.