Deductions at source: new responsibilities for companies
“Finally!” say some, “a Rube Goldberg machine,” say others. Aside from the impact on individuals, deductions at source (DAS) will create a new relationship between employees and their employers who will represent the Tax Office in the collection of taxes. This tripartite relationship will engender new responsibilities and new risks for companies. Here, our finance loss adjuster provides a brief overview ahead of its implementation.
Deductions at source: test phase for this measure
From 2019, tax will be paid directly for the period worked. Taxpayers will pay tax on income received in 2019 but not in 2018, as this will be treated as a “blank” year for revenues, except for so-called “extraordinary” revenues (capital gains on property and investments, and dividends*).
Tax will be deducted “at source” each month by collection agencies, i.e. the entities making the payments (companies, pension funds, etc.), via the pay slip.
For non-employed taxpayers (self-employed persons, farmers, traders, etc.) and property revenues, deductions will be taken directly from bank accounts.
The process will be as follows:
- The taxpayer declares their rate to the Tax Office before 15 September 2018 (personalised, individualised or neutral).
- They will send this information via the DSN (nominative social declaration, obligatory for all companies since 1 January 2017, particularly for the social security component). They will be taxed according to this rate and will make the payment to the Tax Office.
From 2 January 2019, taxpayers will be able to update their situation if it has changed since 2018 (divorce, birth, etc.).
What are the risks for companies becoming collection agencies?
Since deduction at source has yet to be implemented at the time of writing, 2019 will be a test year. However, companies, as well as pensions funds, will be exposed to new risks as collection agencies.
There is a risk of fraud if a malicious employee embezzles the collected tax. The Tax Office will not contact employees directly, as the deduction will have already been made. There will be no “double penalty” for the taxpayer and therefore no loss on their part. In contrast, the Tax Office will contact the collection agency, as is currently the case for social contributions. In this case, if the Tax Office penalises the company, it will fall upon the latter to take action against third parties responsible for non-payment (chartered accountant, payment management agency, etc.).
If the company fails to fulfil its collection obligations, it may be subject to recourse from the employee. The financial risk could be low, since the recalled tax should have been honoured in any case by the taxpayer and would not constitute a loss. Only possible penalties could be taken into account. However, this hypothesis seems unlikely: the collection rate is currently close to 100% for social contributions.
In addition to the risks mentioned, others are likely, particularly those of an IT nature, such as missing and even incorrect rate information for some employees.
It will no doubt take several months before we can objectively analyse DAS and changes are likely to be made during 2019 along with possible corrections. As you can see, deduction at source raises many questions which we will address in the 2019 newsletter.
Pascal PROFIZI – Finance & Services Loss Adjuster