When reviewing an individual’s income tax returns, the French tax authorities may send a request for clarification (demande d’éclaircissements) or a request for justification (demande de justifications) (article L16 of the Tax Procedure Code, Livre des procédures fiscales, LPF). These requests are usually made in the course of a desk audit, conducted from the tax office, or of an in-depth review of the taxpayer’s personal tax situation. They may precede a more thorough tax audit.
They differ from simple requests for information, which are in principle not binding. A request for clarification or justification, on the other hand, calls for a reply within a set period: failing that, the tax authorities may resort to an ex officio assessment (taxation d’office). Depending on the case, the help of a lawyer may be useful in preparing the reply.
In brief
- In principle, a request for information is not binding; a request for clarification or justification is.
- The period for replying may not, in principle, be less than two months.
- A reply considered insufficient in principle gives rise to a formal notice to supplement it within thirty days.
- No reply, or a reply treated as no reply, may lead to an ex officio assessment (article L69 of the LPF).
- For undeclared accounts or contracts held abroad, a specific procedure provides for a sixty-day period (article L23 C of the LPF).
Contents
- The request for information: in principle a non-binding request
- Request for clarification and request for justification: what are the differences?
- How the procedure unfolds
- The taxpayer’s reply and its consequences
- The “double rule”: when can justification of bank credits be requested?
- Special case: undeclared accounts and contracts held abroad
- The assistance of an adviser
- What I see in my cases
- FAQ
The request for information: in principle a non-binding request
The tax authorities may ask taxpayers for information relating to their returns (article L10 of the LPF). These requests for information (demandes de renseignements), often sent by ordinary letter, are intended for example to complete a return (address, dependent children) or to allow the taxpayer to explain a point. They are not binding: failing to reply in principle entails neither a penalty nor an ex officio assessment.
However, their content is not governed by any legal provision, and they do not come with the safeguards attached to binding procedures. The courts only ensure that the tax authorities act fairly, that is to say that the taxpayer is not misled as to the scope of the request. The tax authorities are in principle not required to state that a request for information is not binding.
The replies given may be used by the tax authorities. It is therefore generally useful to examine the content of such a request carefully, ideally with a lawyer, in particular to check that it does not in reality conceal an in-depth audit, which is subject to specific safeguards.
Request for clarification and request for justification: what are the differences?
The request for clarification
It may relate to any item in an income tax return. The tax authorities ask the taxpayer for explanations on a point that seems unclear or contradictory to them, for example:
- contradictions between several returns;
- discrepancies between the return and information held by the tax authorities (third-party returns, information received from foreign authorities, etc.).
The tax authorities do not, in principle, have to show that the taxpayer has higher income than declared: it is enough that a point calls for explanations.
The request for justification
It asks the taxpayer to prove certain items, with supporting documents. Under article L16 of the LPF, it may in particular relate to:
- the taxpayer’s family situation and dependants;
- expenses deducted from total income or giving entitlement to a tax reduction;
- assets held abroad or income from such assets;
- the origin of sums or income, where the tax authorities have gathered evidence suggesting that the taxpayer may have higher income than declared.
How the procedure unfolds
Requests for clarification and justification are made in writing, in principle by registered letter with acknowledgement of receipt. They must explicitly state the points they concern and mention the period for replying, which may not be less than two months (article L16 A of the LPF).
This period in principle runs from receipt of the request. An extension may be requested, but the tax authorities are in principle not obliged to grant it.
The taxpayer’s reply and its consequences
The reply is in principle made in writing: a purely oral reply, a late reply or a refusal to reply are treated as no reply. An evasive reply, or one unrelated to the questions asked, may also be regarded as a failure to reply.
- If the reply is considered satisfactory, the procedure may end there.
- If the reply is considered insufficient, the tax authorities must send a formal notice (mise en demeure) to supplement it within thirty days, specifying the additional information expected.
- If there is no reply, or if the reply remains insufficient after the formal notice, the tax authorities may make an ex officio assessment (article L69 of the LPF). The taxpayer then in principle bears the burden of proving that the assessment is excessive.
In practice, a reasoned reply supported by specific documents is generally better received than a vague one. Depending on the case, it can be prepared with a lawyer.
The “double rule”: when can justification of bank credits be requested?
To request justification of the origin of sums credited to bank accounts, the tax authorities must have gathered evidence suggesting that the taxpayer may have higher income than declared. In practice, case law generally accepts such a request where bank credits amount to at least twice the declared income, or show a significant gap with it; a ratio of 1.96, for example, was held to be insufficient.
For this calculation, certain sums are in principle excluded, for example transfers between the taxpayer’s own accounts or sums whose origin is already known to the tax authorities. Where these conditions are not met, the procedure may, depending on the case, be irregular.
Special case: undeclared accounts and contracts held abroad
Where an account or a life insurance contract held abroad has not been declared at least once in the previous ten years, the tax authorities may request, independently of any review of the taxpayer’s personal tax situation, information or justification on the origin and method of acquisition of the assets, within a period of sixty days (article L23 C of the LPF).
In the absence of a sufficient reply, and after a thirty-day formal notice where the reply is insufficient, assets whose origin has not been justified may be subject to gift and inheritance tax at the rate of 60% (article L71 of the LPF and article 755 of the French Tax Code, CGI). These situations are detailed on the page dedicated to tax audits of foreign accounts.
The assistance of an adviser
The taxpayer may be assisted by an adviser of his or her choice, for example a lawyer, in preparing the reply, even though the request does not have to mention this right. A lawyer can in particular help to check the regularity of the request, gather the supporting documents and draft a complete reply within the time limits, which may limit the risk of a tax reassessment.
What I see in my cases
The question the tax authorities ask most often in my cases concerns the origin of the funds. This is a very important point: depending on the answer given and the supporting documents produced, reassessments will be heavier or lighter, or even impossible. Gifts are the transactions that are hardest to justify.
I prepare these replies in advance rather than at the last minute, and I take care to answer exactly and precisely what is asked: an answer that is too detailed, or beside the point, often draws attention to other subjects.
FAQ
What happens if there is no reply to a request for justification?
In principle, failing to reply within the period, which is at least two months, allows the tax authorities to make an ex officio assessment (article L69 of the LPF). The burden of proof then in principle lies with the taxpayer, who must show that the assessment is excessive. An insufficient reply first gives rise, as a general rule, to a formal notice to supplement it within thirty days.
Does a simple request for information call for a reply?
A request for information is not binding: failing to reply in principle entails neither a penalty nor an ex officio assessment. In some cases, replying may nevertheless help to dispel the tax authorities’ doubts quickly. The content of the request deserves to be examined before any reply, as the information provided may be used by the tax authorities.
What is the difference between a request for clarification and a request for justification?
A request for clarification seeks explanations on a point in a return, for example a contradiction or a discrepancy. A request for justification requires evidence, in particular on family situation, deducted expenses, assets or income held abroad, or the origin of sums credited to a bank account where the tax authorities have evidence suggesting that the declared income is incomplete.
