BNP Paribas and the deductibility of fines: can you deal?

The general tax rule in France lies within article 39, 2 of the French general tax code: “financial penalties and penalties of all kind to the borne of legal offenders are not admitted in deduction of the revenues submitted to taxation.”

If the amount is paid to a foreign government rather than the French government, it does not make any difference. According to the article 39, 2 of the French general tax code, combined with the law regarding the 2008 budget and the French administrative doctrine (Bulletin Officiel des Finances Publiques BOI-BIC-CHG-60-20-20-20120912), the general rule of non-deductibility of fines and penalties incurred from the violation of legal requirements applies to French, international and European law requirements; as well as imposed penalties to offenders of foreign legal requirements, connected with taxable income/operations in France.

Concerning the BNP case, from a strict legal approach, the answer is the application of the non-deductibility rule on the total amount of the fine. However, politically and financially speaking, there is much more at stake. BNP Paribas is France’s largest and Europe’s second-largest bank.
On April 7th, 2014, President Hollande sent President Obama a letter pointing out the “disproportionate nature” of the penalties envisaged against the BNP Paribas Group, and asked for the procedure to be conducted “on fair grounds, in accordance with the financial regulation authorities.”  As President Obama categorically refused any implication in the BNP case, it would not be unreasonable for BNP Paribas to find an agreement with the French Department of Finances and Public Accounts to render deductible all or part of the fine. The formal legal demand in force is called a rescript, which allows taxpayers to interrogate the administration on the application of tax rules and notably on their specific situation in respect of these rules.