A business or a manager who discovers an error or an irregularity in their tax position may, in some cases, regularise it voluntarily, before any audit. For businesses and their managers, the tax authorities created a dedicated contact point in 2019: the tax compliance service for businesses (service de mise en conformité fiscale des entreprises, SMEC), attached to the large businesses directorate (DGE).
This article explains in plain terms what this service is for, under what conditions it can be approached, how the file is put together and what penalty reductions may be obtained. Whether such a step is appropriate, given that it may have tax and sometimes criminal consequences, is assessed case by case, ideally with a lawyer.
In brief
- The SMEC allows businesses and their managers to regularise certain situations voluntarily, in return for reduced penalties.
- The step in principle requires that no audit, investigation or judicial proceedings be under way.
- The tax due is in principle still paid in full; it is the surcharges and late-payment interest that are reduced, by way of settlement.
- As an indication, an 80% surcharge may be reduced to 30%, a 40% surcharge to 15%, and late-payment interest by 40% or 50%.
- Before taking any step, it is advisable to consult a lawyer in order to analyse the situation and the consequences of a regularisation.
Contents
What is the tax compliance service?
The SMEC is a regularisation desk reserved for businesses and their managers. Its powers are exhaustively defined; they cover in particular:
- tax irregularities discovered when a business is acquired, before or after the acquisition;
- certain international tax issues: activity carried on in France without a permanent establishment being declared, arrangements involving entities established abroad, for example;
- certain issues relating to the taxation of managers: capital gains on the sale of shares, the impatriate regime, “Dutreil” agreements or “management package” schemes;
- transactions likely to give rise to an 80% or 40% surcharge;
- since 2021, certain situations in which the corrections are difficult to quantify.
Situations outside this scope may, depending on the case, be regularised with the competent tax office: the business tax office for the company, the individual tax office for the manager.
A voluntary step
The step must be voluntary. In principle, it is not open to businesses that are subject to an ongoing tax audit, that have received a notice of audit or of remote examination of accounts, or that are subject to an administrative or judicial investigation. The timing of the step is therefore decisive.
Putting the file together
The file is sent to the compliance service of the large businesses directorate. In principle, failing which it is inadmissible, it includes:
- a request for tax compliance;
- a precise and detailed written account of the situation concerned, with supporting documents;
- amended returns covering the whole period not yet time-barred;
- evidence of the amounts concerned, making it possible to check the calculations;
- a statement by the taxpayer that the file is truthful.
To take account of the complexity of certain situations, the amended returns and the figures can in principle be filed within six months of the request being filed with the other items.
The tax consequences
The additional tax is in principle still payable in full; where appropriate, it may be paid under a schedule agreed with the tax authorities. The voluntary nature of the step is in principle taken into account through a reduction, by way of settlement, of the surcharges and late-payment interest, according to the following scale:
| Surcharge that would have applied in an audit | Rate in the event of compliance | Late-payment interest |
|---|---|---|
| 80% (fraudulent manoeuvres or abuse of law) | 30% | Reduced by 40% |
| 40% (deliberate failure) | 15% | Reduced by 40% |
| 10% (failure to file or late filing) | 0% | Reduced by 50% |
Using this service does not, in principle, prevent the tax authorities from examining the file and, depending on the case, drawing other consequences from it; this is one of the reasons why the file deserves careful preparation.
The case of business acquirers
Where the request is made by the new owners of a business within 18 months of its acquisition, three situations are in principle distinguished:
- the tax consequences are borne entirely by the seller, under a full liability guarantee: the penalty reductions do not apply;
- they are partly borne by the seller (partial liability guarantee): the reductions apply in proportion to the share remaining payable by the acquirer;
- they are borne exclusively by the acquirer: the scale applies in full.
What about individuals?
The SMEC is reserved for businesses and their managers. An individual who wishes to correct an error may, depending on the case, file an amended return with their tax office and benefit, under certain conditions, from the right to make mistakes. For accounts held abroad, see the article regularising an undeclared foreign account: what to do if you forgot to declare it?.
What I see in my cases
For individuals, the foreign account regularisations I handle generally take four to twelve months, depending on the size of the case and the department concerned. The bank statements are generally obtained in the end, sometimes after many reminders, except when the bank, now that the person is no longer a client, is reluctant to provide them.
Taxpayers who have tried to regularise on their own also come to see me: they have often gone into far too much detail or answered beyond the question asked, and the tax authorities have pulled on the thread and unwound the ball of wool, with new questions. The resulting reassessments are often substantial.
FAQ
Can the SMEC be approached during a tax audit?
In principle no: the step requires that no audit be under way and that no notice of audit or of remote examination of accounts has been received. During an audit, other mechanisms exist, such as regularisation in the course of the audit.
Does regularising with the SMEC remove the tax due?
No: the additional tax is in principle still payable in full. It is the surcharges and late-payment interest that may be reduced, according to a scale, by way of settlement.
Does the step protect against criminal prosecution?
The penalty reduction is a tax matter. The question of possible criminal consequences depends on the situation and deserves to be examined with a lawyer before taking any step. See the article on tax fraud.
Can an individual approach the SMEC?
The service is reserved for businesses and their managers, for matters within its scope. An individual in principle approaches their own tax office.
