The law for a State serving a society of trust (ESSOC law no. 2018-727 of 10 August 2018) enshrined a right to make an error for users acting in good faith and sought to establish a relationship of trust between the administration, individuals and businesses.
Who can benefit from the right to make an error, and on what conditions? What are its limits? What tax measures did the law introduce, in particular in the event of a tax audit? This article takes stock, bearing in mind that every situation deserves a specific analysis.
In brief
- The right to make an error in principle protects a person acting in good faith who has breached a rule for the first time or made a clerical error, and who corrects the situation.
- In principle, it does not apply in the event of bad faith or fraud, and is not a right to file late or to omit a return.
- In tax matters, late-payment interest may be reduced by 50% for a voluntary correction and by 30% for a correction during an audit.
- Points expressly approved during an audit in principle become binding on the tax authorities (tax guarantee).
- For accounts held abroad, the specific fines follow their own rules.
Contents
The right to make an error: principle and conditions
Under the Code governing relations between the public and the administration (article L123-1), a person who has breached a rule applicable to his or her situation for the first time, or who has made a clerical error in reporting it, may not be penalised if he or she corrects the situation on his or her own initiative or after being invited to do so by the administration, within the period it indicates.
Good faith, an essential condition
The right to make an error requires good faith: the error must be unintentional. Under the law, a person who has deliberately breached a rule applicable to his or her situation is acting in bad faith. In the event of a dispute, the burden of proving bad faith or fraud lies with the administration.
The line between a clerical error, a deliberate failure and fraud is sometimes difficult to draw. Depending on the case, the assistance of a lawyer may be useful to demonstrate good faith and rule out a more serious characterisation.
Exceptions
As a general rule, the right to make an error does not apply, in particular:
- in the event of bad faith or fraud;
- to persons who repeatedly breach the same rule;
- to late filing or failure to file a return within the prescribed time limits: the right to make an error is not a right to be late.
The main tax measures
Reduction of late-payment interest
Where an error was made in good faith, late-payment interest is in principle reduced by 50% where the taxpayer voluntarily files an amended return, before any audit procedure, and pays the tax due at the same time.
It is reduced by 30% where the correction is made during an audit (article L62 of the Tax Procedure Code, LPF). During a desk audit or a remote review of the accounts, the request may in principle be made within thirty days of receipt of the reassessment proposal; during a business tax audit or a review of the personal tax situation, it must in principle be made before the reassessment proposal is sent. In both cases, the correction in principle requires payment of the sums due.
The tax guarantee
Since the ESSOC law, the points examined during an audit which have not been adjusted, and which the tax authorities have expressly stated as approved in the reassessment proposal or in the notice of no adjustment, are in principle binding on them (article L80 B of the LPF). The taxpayer cannot then be subject to a tax reassessment on these points in a later audit, as long as his or her situation and the law have not changed. Only the points expressly mentioned are covered: the absence of an adjustment on a point does not, in itself, amount to approval.
Rulings during an audit
During a business tax audit or a remote review of the accounts, and before any reassessment proposal is sent, the business may ask the tax authorities in writing to take a position on a point they have examined. This position strengthens legal certainty: the tax authorities cannot, in principle, subsequently make adjustments contrary to the position taken.
The right to be audited
Any person may ask to be audited on one or more specific points. If irregularities are discovered, the taxpayer may in principle correct them with reduced late-payment interest. Whether such a request is appropriate, however, depends on each situation and deserves to be assessed beforehand, ideally with a lawyer.
Mediation and settlement
The ESSOC law also encouraged amicable dispute resolution: settlement is now provided for in general terms by the Code governing relations between the public and the administration, and adds to the mediation schemes that make it possible to seek a solution without going to court.
The relationship of trust with businesses
Tax partnership for large companies and mid-sized companies
For large companies and mid-sized companies (ETI), the relationship of trust takes the form of a tax partnership, formalised by a protocol, with a dedicated contact person from the business partner service. The partners examine the tax treatment of transactions presenting a risk or a strategic issue, which may lead to positions binding on the tax authorities. Either party may end the partnership at any time.
Personalised tax support for SMEs
Lighter in form, tax support is aimed at SMEs, in particular those that are growing, innovative or active in strategic sectors. A dedicated contact person from the regional public finance directorate examines with the business the tax questions that may give rise to a ruling request, on a one-off or repeated basis.
The business tax compliance service (Smec)
Opened in 2019, the Smec allows businesses to voluntarily correct their tax situation, with penalties reduced according to a scale, provided that no tax, administrative or judicial procedure is under way. Requests may concern, in particular, anomalies discovered by the acquirers of a business, certain international issues (activity in France constituting an undeclared permanent establishment, structures involving entities abroad, etc.) or certain questions relating to the personal taxation of executives (Dutreil pact, capital gains on the sale of shares, the inbound expatriate regime).
Unlike the scheme implemented from 2013 to 2017, which concerned undeclared assets held abroad, the Smec is aimed at businesses and is not limited to transactions linked to other countries. The regularisation of individuals’ assets held abroad is now handled through a compliance request to the competent tax offices.
The right to make an error and accounts held abroad
Failure to declare an account held abroad is in principle penalised by specific fines, which follow their own rules. Voluntary correction of such an omission generally remains possible as long as no procedure has been initiated, but it is not the same as the right to make an error. Each situation deserves to be analysed before taking any step.
What I see in my cases
For foreign accounts, the question arises of whether a voluntary regularisation is worthwhile. In my experience, the tax authorities may be slightly more lenient when the step is taken voluntarily, but I do not see a great difference in treatment compared with a regularisation made at their request. Good faith is assessed above all in the light of factors specific to each situation: the ties with the foreign country, the origin of the funds, constructive cooperation with the tax authorities. Each situation therefore deserves to be analysed before taking any step.
FAQ
Does the right to make an error apply to a forgotten return?
In principle no: the right to make an error is not a right to file late or to omit a return within the time limits. It concerns errors made in good faith, in particular a first breach of a rule or a clerical error, corrected voluntarily or at the tax authorities’ request.
What reduction in late-payment interest can be obtained?
In principle, 50% where an amended return is voluntarily filed together with payment of the tax, before any audit procedure, and 30% where the correction is made during an audit under the conditions of article L62 of the LPF.
Who has to prove bad faith?
In the event of a dispute, the burden of proving bad faith or fraud lies with the administration. A person who has deliberately breached a rule applicable to his or her situation is acting in bad faith.
