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You are about to sell your house or flat and the buyer offers to pay part of the price with a bribe. Conversely, you are a buyer and your seller wants to conceal part of the sale price. What are the benefits and risks of such a practice?

On either side, using a bribe offers immediate tax benefits, but the risks are high enough to make this illegal practice highly inadvisable.

  • Bribes: immediate 'tax benefits

This simple but totally illegal practice can be tempting for both the seller and the buyer of a property. By agreeing to conceal part of the sale price, the parties involved reduce the basis of assessment for various taxes, thereby reducing taxation.

In effect, the buyer who conceals part of the price will reduce registration duties and the notary's fees.

The seller, for his part, will be able to reduce his capital gains tax (if he makes one and if he is not exempt from capital gains tax). What's more, when it comes to property wealth tax (formerly known as impôt de solidarité sur la fortune), revising the price downwards can save the seller from a tax reminder if they have under-valued their property in previous declarations.

  • Bribes: not a good practice

To prevent a property transaction concealing a bribe, article 850 of the French General Tax Code stipulates that in any deed for the sale of real estate, sellers and buyers are required to end the deed with the following statement: "The parties affirm, under the penalties laid down by article 1837 of the French General Tax Code, that this deed expresses the full price or the agreed balance".

Fraudulent affirmation is punishable by three years' imprisonment and a €45,000 fine. In addition, the court may impose a five-year ban on civic, civil and family rights under article 131-26 of the Criminal Code. These penalties are cumulative with the tax penalties for concealment (a tax fine equal to 50% of the duties or taxes evaded and interest for late payment on the sums due).

In addition to these criminal and tax penalties, civil penalties should not be overlooked.

The risks specific to the purchaser are as follows:

A bribe that is too large may result in an inadequate price that could be rescinded on the grounds of lesion. For example, the vendor could ask for the sale to be rescinded (contest the sale) if the sale price stated in the deed is less than seven twelfths of the actual price of the property.

The tax authorities may also use the market value of the property to establish their rights, if they consider that the property has been undervalued.

Finally, when the property is resold, capital gains tax will be even higher if the purchase price has been understated. Note that capital gains tax (if applicable) is often higher than registration fees.

The seller's own risks are extremely important. Article 1321-1 of the French Civil Code states that any counter-letter whose purpose is to increase the price in order to conceal part of the sale price of a property is null and void.

The nullity of the counter-letter results in the retroactive disappearance of all the obligations it contains. The apparent deed, on the other hand, continues to produce its effects.

If the concealment is proven, the seller will have to return the kickback he received, without being able to call the sale into question. According to case law, concealment can be proven by any means.

Article 1321-1 of the French Civil Code encourages buyers not to honour their commitments once the sale has been finalised. And if they have already paid a bribe, they can take legal action for a declaration of simulation and thus recover the sum they paid in addition to the price stipulated in the deed.

A professional involved in the transaction must therefore strongly advise against this practice, especially for the seller, whose assurance of receiving the full price of the property depends on the goodwill of the buyer.