An accounting adjustment does not mean a tax adjustment

A company was subject to a tax audit during which the French Tax Authority (administration ) disputed the deductibility of an expense for the year 2019 that related to the purchase and resale of a vehicle that had not been recorded in 2016.

The company had, in fact, purchased a Maserati in 2015, which it sold that same year in order to purchase a new vehicle. That vehicle was also sold in 2016. This second vehicle had not been recorded in the 2016 financial statements, and the company had also recognized a gain on the sale of the first vehicle when it should have recognized a loss.

To correct this error, during 2019, the company:

- records the second vehicle in the books by debiting the "transportation equipment" account for its purchase price

- Credit the sales revenue accounts for the resale price of the first vehicle and credit the accounts payable account for the difference between the purchase price and that resale price

- recorded the disposal of the asset in the financial statements

The French Tax Authority (administration ) determined that these transactions allowed for the deduction, in 2019, of an expense corresponding to the capital loss realized in 2016 upon the sale of the second vehicle. It then issued a tax assessment, which was challenged all the way to the Administrative Court of Appeals.

The court will then rule that “the expense recorded in this manner could not be attributed to the fiscal year ended December 31, 2019, since the sale of the second Maserati vehicle took place in 2016. Similarly, the extraordinary income related to this extraordinary expense should not have been taken into account, as it also pertained to a prior fiscal year.”

She also believes that these accounting errors were indeed deliberate, even if they were motivated by "alleged unintentional errors committed in 2016."

It therefore confirms the tax assessment but finds, however, that there was no intent to evade taxes because“the assessment results from the correction of an accounting error made in a prior fiscal year, which does not indicate any intent on the part of the company to evade taxes.”

CAA Nantes, Sept. 22, 2026, No. 25NT01438

This legal watch provided by Mispelon Avocat, a law firm specializing in French tax audit and French tax litigation. You can stay legal watch subscribing to the newsletter via this link.