When the tax authorities audit a business or an individual, they are required to follow a precise procedure, laid down mainly in the French Tax Procedure Code (LPF). Depending on the case, an irregularity may lead to all or part of the reassessments being annulled. The central document in this procedure is the proposed tax reassessment, which sets out the additional tax envisaged.
This article presents five points that deserve to be checked in a proposed reassessment, followed by other procedural aspects and the possible remedies. As every case is different, a lawyer’s analysis helps determine whether an irregularity can be relied on, and how.
In brief
- The proposed reassessment is in principle signed by a competent official and is reasoned, i.e. it explains each adjustment.
- It is in principle notified before the limitation period expires: for income tax, generally on 31 December of the third year following the tax year.
- The procedure is in principle adversarial: oral debate during an on-site audit, 30 days to reply, extendable on request, and a reasoned response from the tax authorities.
- The same period cannot, in principle, be audited twice for the same taxes.
- Even where the procedure has been followed, remedies exist: the auditor’s superior, the designated contact, the commissions, a claim and then the court.
Contents
The 5 points to check in the proposed reassessment
At the end of an audit, the tax authorities in principle send the taxpayer a proposed reassessment: this is the document informing them of the adjustments envisaged. The following five points are among the rules the tax authorities are required to observe; a more complete list appears in the article on the 12 procedural defects that can lead to reassessments being annulled.
1. Signature by a competent official
The proposed reassessment is in principle signed by an official with authority to do so, generally of at least the rank of contrôleur, whose name and position are stated. A document issued by an official lacking authority may, depending on the case, be irregular.
2. Sufficient reasoning
The proposed reassessment is in principle reasoned: for each adjustment, it states the facts relied on, the provisions applied and the method of calculation, so that the taxpayer can submit observations (Article L57 of the LPF). Reasoning that is too vague or incomplete may, depending on the case, lead to the adjustment concerned being annulled. The article I have received a proposed tax reassessment: what should I do? describes this document in detail.
3. Compliance with the limitation period
The tax authorities can reassess a tax only for a limited period, called the limitation period. For income tax, corporate tax and VAT, it in principle expires on 31 December of the third year following the year for which the tax is due: tax on 2022 income, declared in 2023, can in principle be reassessed until 31 December 2025. Longer periods apply in some cases, for example for undeclared foreign accounts. See the article on reassessment periods.
4. Respect for the adversarial principle
The procedure is in principle adversarial. Depending on the type of audit, this means in particular an oral and adversarial debate with the auditor during an on-site audit, 30 days to reply to the proposed reassessment, extendable by 30 days on request, and a reasoned response from the tax authorities to the taxpayer’s observations. Before any reassessment, the tax authorities may also send a request for clarification or justification.
5. In principle, no second audit of the same period
A period that has already been audited cannot, in principle, be audited again for the same taxes (Article L51 of the LPF for business tax audits; a comparable rule exists for the in-depth examination of an individual’s tax situation). The law nevertheless provides for exceptions, for example in the event of fraudulent conduct.
Other procedural points: length of the audit and documents taken away
For small businesses whose turnover does not exceed certain thresholds, an on-site audit cannot in principle last more than three months (Article L52 of the LPF), subject to the exceptions provided for by law. Exceeding this period may, depending on the case, lead to the reassessments being annulled.
During an audit, the tax authorities may ask for explanations and supporting documents. They may in principle take away original documents only with the taxpayer’s written consent, and they are then required to return them; late return or failure to return them may, depending on the case, constitute an irregularity. The course of an audit is described in the article on the business tax audit.
Remedies, even where the procedure has been followed
Even if the tax authorities have followed the procedure, the taxpayer has several ways of putting forward their arguments:
- observations in reply to the proposed reassessment, in principle within the 30-day period;
- an appeal to the auditor’s superior, then to the contact designated by the tax authorities;
- depending on the nature of the disagreement, referral to the departmental commission for direct taxes and turnover taxes or to another commission, whose opinion is not binding on the tax authorities;
- after the tax has been assessed, a formal tax claim, then, where appropriate, the administrative court.
The choice of arguments and of the right time to raise them depends on each case. Before taking any step, it is advisable to consult a lawyer in order to analyse the procedure and the substance of the reassessments. See also the page French tax audit – how to defend yourself with a lawyer.
The 5 points at a glance
| Point | Rule in principle | Possible consequence of an irregularity |
|---|---|---|
| Signature | Competent, identified official | Irregularity of the proposal, depending on the case |
| Reasoning | Facts, provisions and calculations set out (Article L57 of the LPF) | Annulment of the insufficiently reasoned adjustment, depending on the case |
| Limitation period | Generally 3 years, longer in some cases | Adjustments in principle time-barred |
| Adversarial principle | Oral debate, 30 days to reply, reasoned response | Annulment, depending on the seriousness of the breach |
| Second audit | Prohibited for the same period and the same taxes, subject to exceptions | Annulment of the adjustments resulting from the second audit, depending on the case |
What I see in my cases
The limitation period and the regularity of the procedure are among the very first things I look at in a case. This is not a theoretical exercise: I have fairly regularly had reassessments annulled for procedural irregularity or because they were time-barred. Tax law is complex, and adjustments are sometimes proposed wrongly. What tips the balance in an audit is, first, procedural errors, then the merits; amicable remedies remain very useful, provided the arguments are well presented.
FAQ
Does a procedural irregularity always lead to the reassessment being annulled?
Not necessarily. Some irregularities are sanctioned by nullity under the law itself; others lead to annulment only if they deprived the taxpayer of a safeguard or may have influenced the decision. A case-by-case analysis is therefore useful.
How long is there to reply to a proposed reassessment?
In principle 30 days from receipt, a period that can be extended by 30 days on a request made before it expires. Without a reply within the period, the adjustments are in principle deemed accepted.
Until when can the tax authorities reassess my income tax?
As a general rule, until 31 December of the third year following the tax year. This period may be longer in some cases, in particular for undeclared foreign accounts or undisclosed activity. See the article on reassessment periods.
When should a procedural irregularity be raised?
In principle during the audit, in the observations in reply to the proposed reassessment, then in a claim and before the court. The choice of timing and of how to present it deserves to be examined with a lawyer.
Read more
- Tax Audit: 12 Procedural Defects That May Lead to Reassessments Being Annulled
- I Have Received a Tax Reassessment Proposal: What Should I Do?
- Request for Clarification or Justification from the French Tax Authorities: Deadlines, Reply and Consequences
- The Business Tax Audit: The Stages in Detail
- How can I challenge my taxes?
