Frequently Asked Questions QFAQ

There are generally three stages in a tax audit:

• Information gathering

• Notifying taxpayers of proposed tax assessments

• The litigation phase

Information gathering

During the first phase,administration information and verify that the taxpayer’s returns are accurate.

It may carry out several procedures during which the taxpayer is not necessarily notified.

For example, it may exercise its right to request information from a bank in order to obtain the taxpayer’s bank statements.

For businesses, she may come to review their accounting records as part of a process known as an audit.

For individuals, it may request documentation from the taxpayer regarding items included or omitted from their tax return, for example by conducting a review of their personal tax situation.

Notifying taxpayers of proposed tax assessments

Once the relevant information has been gathered, the second phase of the audit involves notifying the taxpayer of the adjustments the agency intends to make.

Generally, the taxpayer receives a reassessment proposal initiates the adversarial reassessment procedure. The taxpayer has 30 days (60 days if requested) to respond in writing to the proposal.administration responds to these comments, after which the taxpayer may request a meeting with the inspector’s supervisor or appeal to certain commissions. Once the discussions are concluded,administration the taxpayertax bill tax assessment notice, which formalizes the adjustment.

In certain situations, when a taxpayer has failed to meet their obligations, they receive a reassessment notice initiates the process of assessment by the tax authority. Taxpayers have few safeguards in such situations. In all cases,administration wait 30 days before issuingtax bill.

The litigation phase

tax bill the document that formally establishes the tax assessment. Unless the taxpayer requests a payment deferral, the taxpayer must pay the amount of taxes, penalties, and interest claimed.

He may dispute the amount claimed by filing a formal appeal withadministration .

If the claim is denied, the taxpayer must file a lawsuit with the appropriate court (the Administrative Court or the General Court, depending on the type of tax) so that a judge may rule on the matter.

If the court rules against him, he may appeal that decision; then, if the court of appeals still rules against him, he may file an appeal with the Council of State or the Court of Cassation. However, these two courts will rule only on questions of law, not on the facts.

There are various procedures thatadministration administration use to obtain information in order to verify that taxpayers have correctly paid and reported their taxes.

These may include procedures carried out without the taxpayer’s knowledge, such as exercising the right to request the taxpayer’s bank statements from their bank or invoices from a supplier.

It may also contact taxpayers directly to request information, supporting documentation, or clarification. In the case of businesses, it may conduct an on-site audit of their accounting records. For individuals, it may initiate a review of their personal tax situation and schedule a meeting with them at theadministration.

In certain cases, it also has the authority to conduct tax searches, provided it obtains prior authorization from a judge.

The duration of an audit varies greatly depending on the taxpayer’s circumstances and the procedure followed.

If a written request is sent to the taxpayer, the taxpayer’s simple response toadministration bring the audit to a close.

With regard to financial audits, for small and medium-sized enterprises (SMEs), these may be limited to three months.

With regard to the review of an individual’s tax situation, the law generally provides for a one-year period, barring exceptions.

In the event of a tax audit, it is recommended that you seek assistance, particularly from a tax attorney.

This person will ensure that responses are appropriate and that deadlines are met. In this way, they will ensure that you receive all the protections to which you are entitled during the tax audit.

A lawyer’s experience can also sometimes help determine whatadministration has in mindadministration asks certain questions.

If a tax assessment is unavoidable, your attorney may suggest a process to resolve the issue or determine whether there are any mechanisms that could limit the amount of the assessment.

Our firm specializes in tax audits and litigation, and we can guide you through every step of the tax audit process. Feel free to contact us by email; we’ll do our best to respond promptly.

The statute of limitations for tax matters varies depending on the type of tax.

The regulations generally provide that the time limit within whichadministration must notify youadministration an assessment expires in the following cases:

• Income tax and the special surtax on high incomes (LPF, Art. L.169, para. 1): December 31 of the third year following the year for which the tax is due (e.g., for 2020 income, reported in 2021,administration until December 31, 2023, to issue a tax assessment).

• the real estate wealth tax (IFI):

  • December 31 of the third year following the filing of the declaration regarding the value of the items listed in the declaration (LPF, Art. L.180 LPF)

  • on December 31 of the sixth year following the year for which the IFI is due, for items not included in the return or if no return has been filed (LPF, Art. L.186).

• Corporate income tax (LPF, Art. L.169, para. 1): December 31 of the third year following the end of the fiscal year (e.g., if a company’s fiscal year ends on December 31, 2020,administration until December 31, 2023, to issue a tax assessment. The same applies if the company closes its fiscal year on June 30, 2020).

• the research tax credit (LPF, Art. L.172 G): December 31 of the third year following the year in which the special return for this tax credit is filed (e.g., a company with a fiscal year-end of December 31, 2023, files its tax return in 2024 along with the return for the research tax credit;administration until December 31, 2027, to issue a tax assessment).

• VAT (LPF, Art. L.176) or the tax on insurance contracts (LPF, Art. L.182): December 31 of the third year following the year in which the tax became due. The due date for VAT depends on the transactions carried out (sale or delivery of goods, provision of services, importation, exportation, etc.)

• registration fees, inheritance taxes, or gift taxes:

  • on December 31 of the third year following the registration of the deed or declaration, when, to put it simply, the property has been properly declared but its value is incorrect (LPF, Art. L.180).

  • on December 31 of the sixth year following the registration of the deed or declaration, for property or assets not listed in the declaration (LPF, Art. L.186).

• withholding taxes (LPF, Art. L.169 A): the third year following the year for which the tax is due

• property tax (LPF, Art. L.173): December 31 of the year following the year for which the tax is due (e.g., for the 2023 property tax, paid in 2023,administration until December 31, 2024, to issue a tax assessment).

• the CVAE and the CFE (LPF, Art. L.174): December 31 of the year following the year for which the CVAE or the CFE is due.

Under certain circumstances (unreported income, undeclared foreign bank accounts, international administrative assistance, etc.), the statute of limitations may be extended, and the time limits mentioned above do not apply.

There is no requirement to have a lawyer present during an inspection.

Nevertheless, it allows one to assess the implications ofadministration requestsadministration , above all, to ensure that the response provided toadministration willadministration adversely affect the taxpayer in the future.

A lawyer can also help you explore options for regularizing your situation and, if necessary, identify the measures you can take to minimize the amount of the tax assessment.

It ensures that taxpayers receive all the protections to which they are entitled.

Whenadministration information that is available abroad, it may request that another country provide it.

For example, it may request bank statements for an account held abroad or the articles of incorporation or financial statements of a foreign company.

In the event of a request for international administrative assistance, the statute of limitations is suspended, provided thatadministration properly notified the taxpayer (Tax Procedure Code, Art. L.188 A).

Depending on the tax assessed, the tax must be paid within 30 days or within the following months after receiving thetax bill.

Nevertheless, a taxpayer may request a deferral of payment if they intend to contest the taxes claimed (LPF, Art. L.277). This deferral of payment, as long as it remains in effect, preventsadministration seizure proceedings. It does, however, require the taxpayer to provide collateral toadministration bank guarantee, mortgage, pledge of securities, etc.).

To qualify for this stay, the taxpayer must indicate in the appeal that they wish to avail themselves of it. The appeal is the written notice in which the taxpayer sets forth the reasons why they are contesting the taxes assessed byadministration.

To fully benefit from the effects of the payment deferral, it is recommended that you file the claim before the deadline for paying the taxes in question expires.

After submitting the claim along with the request for a payment deferral, the taxpayer receives a letter from the public accountant asking them to indicate, within fifteen days, what guarantees they can provide.

If the taxpayer accepts the proposed guarantees, they should consult with the accountant to determine the procedures for establishing them.

If the accountant refuses the proposed guarantees, it is possible to initiate summary tax proceedings (LPF, Art. L.279).

The suspension of payment remains in effect until the Administrative Court issues a decision or, if the taxpayer does not file a complaint with the Court, until the expiration of a two-month period following receipt of the denial of the taxpayer’s appeal.

If the taxpayer’s appeal to the Administrative Court challenging the tax assessments is dismissed, the taxpayer must, in addition to the previously notified surcharges, pay late payment interest at a rate of 2.4% per year (LPF, Art. L.209).

With regard to income tax, in addition to this interest, he must also pay the late-payment penalty (General Tax Code, Art. 1730).

Conversely, if the Administrative Court overturns the assessment, the taxpayer is entitled, under certain conditions, to claim reimbursement of the costs associated with providing security (LPF, § 208, para. 2).

While, subject to certain exceptions, a business may deduct expenses that reduce its taxable income, such expenses must be incurred in the interest of its business operations.

Thus,administration may deny a deduction for expenses paid by a company if such expenses are not in the company’s best interest.

The same applies if it refuses to collect proceeds even though it receives no compensation for doing so.

The law defines “hidden activity” by stating that“an activity is deemed to be hidden when the taxpayer or legal entity referred to in the first sentence of this paragraph has failed to file the required returns within the statutory deadline and has either failed to report its activity to the agency referred to in the second paragraph of Article L. 123-33 of the Commercial Code, or has engaged in an illegal activity” (LPF, Art. L.169, para. 2).

These are generally situations in which the taxpayer fails to file tax returns and does not register their business with the relevant authorities (RCS, URSSAF, etc.). This is particularly common when a foreign company conducts business in France that constitutes a permanent establishment.

In the case of unreported income, the statute of limitations availableadministration assess the taxpayer is extended to 10 years (LPF, Art. L.169, para. 2).

In addition,administration entitled to apply a surcharge of 80% on taxes that have not been reported and paid by the taxpayer (General Tax Code, Art. 1728(c)). If the additional amount exceeds 100,000 euros, the application of these surcharges triggers an automatic referral of the case to the Public Prosecutor’s Office, which will decide whether or not to initiate criminal proceedings against the taxpayer (LPF, Art. L.228).

However, under certain conditions, the taxpayer has the opportunity to demonstrate that he or she made a mistake in order to avoid these consequences.

In these circumstances, it is important to determine whether sufficient evidence can be provided to demonstrate that the failure to report the activity was an error.

For example, it is important to showadministration the income may have been reported under the wrong category or in another country.

There are certain specialized services withinadministration that allow taxpayers to resolve their tax issues while benefiting from reductions in penalties and late-payment interest.

One example is the Compliance Department. You may contact this department anonymously to determine whether your case can be resolved.