A tax audit of a businessor corporation

Tax audit procedures for a business or corporation

When the tax authorities wish to audit a business, they generally use the accounting audit procedure.

During this process, the tax inspector verifies that the tax returns filed accurately reflect the company’s accounting records and that those records are in order.

The tax inspector may audit all matters, such as the deductibility of certain expenses, the deduction of provisions, VAT rules, supporting documentation, transfer pricing, etc.

Step 1: Notice of Audit

Whenadministration to conduct a tax audit of a business or corporation, they send the entity a notice of audit, informing it that it will be subject to a tax audit.

The notice specifies the tax years and the taxes that will be audited by the tax inspector during the audit. It also indicates the date of the first meeting of the tax audit, which generally takes place at the business or company’s premises (it is possible to ask the inspector to change this date if necessary).

The notice also specifies the documents that may need to be submitted at the first meeting (accounting records, VAT audit trail, transfer pricing documentation, etc.).

When auditing a company, the focus is not on verifying the executive’s income tax. To audit the executive’s taxes,administration initiate a separate procedure, which is generally a review of the executive’s personal tax situation.

Step 2: The first meeting regarding the tax audit of the business or company

At the first meeting with the tax inspector, the inspector collects the documents that were previously requested and generally explains how the tax audit of the company will proceed.

He then asks the executive or his representative to present the company (its business, shareholders, subsidiaries, challenges, etc.) and, if applicable, its tax situation.

He may also start asking questions about various tax-related topics.

Step 3: Questionnaires and meetings

Generally, after the first meeting, the tax inspector will ask the company to provide certain documents and answer specific questions.

A tax audit typically involves several meetings with the auditor during which discussions take place to clarify certain issues.

Depending on the situation, the inspector may be accompanied by experts in certain fields. He or she may also conduct an audit of computerized accounting records.

Step 4: The wrap-up meeting

Once the tax inspector determines that there are no further questions, a final meeting is typically held—often referred to as the “summary meeting”—during which the inspector may explain the reasons for the proposed tax adjustment and whether fines or penalties will be imposed.

Following this meeting, the company receives either a notice of no corrective action if the inspector determines that everything is in order. Otherwise, the inspector sends a reassessment proposal or a reassessment notice.

Contact Us

If you are undergoing a tax audit and would like to discuss it, please contact us by email with a description of your situation (contact@mispelonavocat.com), and we will do our best to respond as soon as possible.

  • The first thing you should do is check that you are available on the date and time of the appointment suggested byadministration the letter. If you are not available, it is important to contact the inspector to request a rescheduling of the meeting. Such requests are common in practice and are generally accepted by inspectors.

    It is important to ensure that your accounting records comply with theadministration’s requirements.

    You have the option of having an advisor of your choice present during meetings with the inspector. It may be important to contact a lawyer, in particular, to assist you during the inspection.

    If you become aware of any errors, you may correct them during this review and receive a reduction in late payment interest (LPF, Art. L.62).

  • Generally, the audit is conducted on-site at the company.

    However, it is possible to ask the auditor to conduct the tax audit at another location (such as an accountant’s office or a lawyer’s office).

    In some cases, the auditor may also decide to conduct the tax audit at a location other than the company’s premises.

  • As soon as the tax audit begins, the auditor will request access to the company’s accounting records and, if necessary, the VAT audit trail.

    Depending on the size of the business or company, he or she may also request transfer pricing documentation.

    Furthermore, during the audit, the tax inspector has few restrictions on the documents he or she may request.

    In any case, he must have access to the company’s financial records, issued invoices, and supporting documentation for expenses recorded and deducted as expenses.

  • The law stipulates that an audit may not last longer than three months only for certain companies (LPF, Art. L.52). These are companies with annual revenue of less than:

    • 818,000 euros when they are engaged in the sale of tangible goods, the restaurant business, or the provision of housing

    • 391,000 euros when they are engaged in agricultural activities

    • 247,000 euros when they engage in non-commercial activities

    However, this audit period does not apply in certain circumstances, such as when there are serious accounting irregularities.

    With the exception of certain small and medium-sized enterprises, there is no maximum time limit set by law. However, if the tax inspector conducting the audit wishes to issue a tax assessment, he or she must send a reassessment proposal the statute of limitations expires.

    Unless a specific time limit applies or the company reported a loss for the fiscal year, the statute of limitations for corporate income tax expires on December 31 of the third year following the end of the company’s fiscal year. Thus, for a company that closed its fiscal year on December 31, 2023, an auditor seeking to reassess the company must notify the company of the reassessment via a reassessment proposal December 31, 2026.

  • The statute of limitations for businesses and corporations varies depending on the type of tax. It can be 1 year, 3 years, or even 10 years in some cases.

    Under normal circumstances, when notifying a business or corporation of an assessment, the tax authority’s deadline expires:

    • Corporate income tax (French General Tax Code, 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’s fiscal year ends 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.)

    • 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 third year following the year for which the CVAE or the CFE is due.

    Under certain circumstances (unreported business activities, unreported permanent establishments, international administrative assistance, etc.), the statute of limitations may be extended, and the time limits mentioned above do not apply. The statute of limitations may thus be extended to up to 10 years.

  • The statute of limitations for businesses and corporations varies depending on the type of tax. It can be 1 year, 3 years, or even 10 years in some cases.

    Under normal circumstances, when notifying a business or corporation of an assessment, the tax authority’s deadline expires:

    • Corporate income tax (French General Tax Code, 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’s fiscal year ends 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.)

    • 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 third year following the year for which the CVAE or the CFE is due.

    Under certain circumstances (unreported business activities, unreported permanent establishments, international administrative assistance, etc.), the statute of limitations may be extended, and the time limits mentioned above do not apply. The statute of limitations may thus be extended to up to 10 years.

  • In the event of a tax audit, it is recommended that you seek professional assistance from the outset of the audit, 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.

  • Civil servants responsible for auditing corporate and business taxes are generally divided into two ranks.

    There are public finance auditors who handle requests for information and, in general, less significant matters. They do not typically conduct tax audits of businesses and corporations.

    Public finance inspectors, who hold a higher rank than auditors, will be responsible for other procedures, including corporate tax audits.

    Depending on the size of the business or company, the services and expertise of the inspectors vary. These may include:

    • a Departmental Directorate of Public Finance (DDFiP)

    • a specialized tax audit division (DIRCOFI)

    • the National and International Audit Directorate (DVNI)

    • the Tax Investigation Division (DNEF)

  • There are several reasons that can lead to a tax audit for an individual.

    First of all, the tax authorities plan each year to audit certain businesses or companies that they have, for example, audited in the past.

    In addition, changes within a business or company may also prompt the tax authorities to conduct a tax audit. For example, in the event of restructuring (such as a merger or a tax-free transfer of assets) or if the company’s earnings drop sharply, this may trigger a tax audit.

    Finally, in recent years, data mining has become increasingly widespread and has led to more tax audits.

  • If a routine tax audit of a business or corporation is not going well, the entity may request a meeting with the auditor’s supervisor.

    When a business or corporation receives a reassessment proposal, a period of discussion with the tax authorities begins, during which the taxpayer has several options available. These options are detailed on the page dedicated to the reassessment proposal.

  • If the business or company is unable to provide its financial records, or if those records are insufficient, the tax authorities will reconstruct the company’s profit.

    To do so, it may request information from the company’s suppliers in order, for example, to estimate the amount of products needed for its operations. The tax authorities may also request information from the company’s customers to estimate its revenue.

  • Even after a business has been closed or liquidated,administration may still audit it for fiscal years that are not time-barred.

    A specific procedure must normally be followed, involving the appointment of an ad hoc representative.

    If the liquidated companyadministration subject to a tax reassessment,administration require former officers or shareholders to pay the additional tax.

  • Tax authorities may examine losses during an audit of a company's financial records.

    In particular, the tax inspector may verify that the company’s taxable income for the year in which the deficit was incurred was calculated correctly.

    The statute of limitations for tax losses has been extended to allowadministration taxadministration conduct audits even after the losses have been utilized.

Corporate Tax Audit Opinion