A tax audit is governed by strict procedural rules, laid down mainly in the French Tax Procedure Code (Livre des procédures fiscales, LPF) and clarified by case law. Where the tax authorities fail to comply with them, this is referred to as a procedural defect (vice de procédure).
Not all defects have the same consequences. Some render the procedure null and void by virtue of the law itself; for the others, the irregularity in principle only leads to the cancellation of the additional tax (referred to as “discharge”) if it deprived the taxpayer of a safeguard or may have influenced the decision.
Here are twelve procedural defects that are frequently examined. As every case is different, a lawyer’s analysis generally makes it possible to determine whether one of them can usefully be relied on, and when.
In brief
- A procedural defect is an irregularity committed by the tax authorities during the tax audit.
- Some defects are, as a general rule, sanctioned by nullity by virtue of the law itself, for example when the audit of a small business exceeds the three-month limit.
- The others in principle only lead to cancellation if they deprived the taxpayer of a safeguard or may have influenced the decision.
- Once the limitation period has expired (in principle three years, sometimes ten years for undeclared assets held abroad), the tax authorities can no longer reassess the tax concerned.
- Whether it is worth relying on a defect, and when to do so, is assessed case by case, ideally with a lawyer.
Contents
- 1. A business tax audit lasting more than three months
- 2. No audit notice
- 3. An incomplete audit notice
- 4. No statement of the right to be assisted by an adviser
- 5. Failure to disclose documents obtained from third parties
- 6. Insufficient time to arrange assistance
- 7. No oral and adversarial debate
- 8. A new audit of the same period
- 9. An insufficiently reasoned reassessment proposal
- 10. Refusal of a hierarchical appeal
- 11. Failure to refer the matter to the tax commission
- 12. Expiry of the limitation period
- Summary table of the 12 procedural defects
- What I see in my cases
- FAQ
1. A business tax audit lasting more than three months
For small businesses, the on-site audit of the accounts may in principle not extend beyond three months (article L52 of the LPF). This concerns businesses whose turnover or receipts do not exceed the limits of the simplified tax regime (article 302 septies A of the French Tax Code, CGI). Exceeding this period renders the assessment null and void under the law.
The law does, however, provide for exceptions, for example in the event of serious irregularities depriving the accounts of evidential value or in the event of an undeclared activity. The date of the first on-site visit and that of the last are therefore important points to examine.
2. No audit notice
A business tax audit cannot be initiated unless the business has been informed of it by the sending or delivery of an audit notice (avis de vérification, article L47 of the LPF). This notice specifies, in particular, the years being audited. In practice, it is often sent around fifteen days before the first visit.
The absence of a notice in principle renders the procedure irregular. There is an exception for unannounced audits: the notice is then handed over at the start of the first visit, which is limited to physical findings.
3. An incomplete audit notice
The audit notice must contain certain statements, such as the years or the period being audited. Before the audit begins, the tax authorities must also give the business the Charter of the rights and obligations of the audited taxpayer, or tell it where to consult it: this charter describes the safeguards the business enjoys and its provisions are binding on the tax authorities (article L10 of the LPF).
The omission of a mandatory statement, or of the charter, may, depending on the case, render the procedure irregular.
4. No statement of the right to be assisted by an adviser
The audit notice must expressly state that the taxpayer has the right to be assisted by an adviser of his or her choice, for example a lawyer. Under article L47 of the LPF, this statement is required on pain of nullity of the procedure.
This safeguard applies throughout the audit, including at the stage of the reassessment proposal (proposition de rectification). Regardless of whether the notice is regular, the assistance of an adviser can be invaluable at every stage.
5. Failure to disclose documents obtained from third parties
Where the tax authorities rely on information or documents obtained from third parties (for example a bank, under their right of disclosure, or a foreign tax authority), they must inform the taxpayer of their origin and content. They must also provide the taxpayer with a copy, before collection, if he or she requests it (article L76 B of the LPF).
Failure to comply with this obligation may, in principle, lead to the discharge of the taxes concerned. As copies are not provided automatically, the taxpayer has to request them, and the request can be prepared with a lawyer.
6. Insufficient time to arrange assistance
Between receipt of the audit notice and the first on-site visit, the business must have sufficient time to choose an adviser and organise its defence. The law does not set this period: the Conseil d’État has accepted that two clear days could be sufficient, but in practice the period is usually longer.
A period that is too short may deprive the taxpayer of the safeguard constituted by the assistance of an adviser and, depending on the circumstances, render the procedure irregular.
7. No oral and adversarial debate
During a business tax audit, the auditor must in principle allow the business to engage in an oral and adversarial debate (débat oral et contradictoire) with him or her on the findings he or she intends to rely on, in particular before the reassessment proposal is sent.
Where the business establishes that it was deprived of this debate, the additional tax may be cancelled. The burden of proving this deprivation in principle lies with the taxpayer, hence the value of keeping a record of exchanges with the auditor.
8. A new audit of the same period
Once the business tax audit of a period has been completed, the tax authorities may no longer carry out a new audit of that same period for the same taxes (article L51 of the LPF), except in the cases exhaustively listed in that article, in particular where the first audit was limited to specific transactions. An irregular new audit constitutes a procedural defect.
9. An insufficiently reasoned reassessment proposal
The reassessment proposal must be reasoned so as to enable the taxpayer to submit observations or to accept it (article L57 of the LPF): it states the nature and amount of the proposed adjustments, together with the reasons for them, in fact and in law.
Insufficient reasoning, for example a mere reference to a legal provision without explanation, may render the procedure irregular and, in principle, lead to the discharge of the taxes concerned. The proposal must also state, on pain of nullity, the right to be assisted by an adviser (article L54 B of the LPF), as well as the thirty-day period for replying, which may be extended by thirty days on request.
10. Refusal of a hierarchical appeal
In the event of persistent disagreement with the auditor, the Charter of the audited taxpayer provides for the possibility of obtaining a meeting with the auditor’s hierarchical superior and then, where appropriate, with the contact person designated by the tax directorate (often called the interlocuteur départemental).
Where the taxpayer has requested this appeal under the conditions laid down in the charter, depriving him or her of it may, according to case law, render the procedure irregular.
11. Failure to refer the matter to the tax commission
Where the disagreement persists on a question within its jurisdiction (mainly questions of fact, such as the amount of a business’s profit or turnover), the taxpayer may request that the dispute be referred to the departmental commission for direct taxes and turnover taxes (article L59 of the LPF). This commission includes representatives of the tax authorities and of taxpayers.
The tax authorities’ reply to the taxpayer’s observations must in principle mention this possibility. If the tax authorities do not refer the matter to the commission even though the taxpayer has duly requested it, the procedure may be regarded as irregular.
12. Expiry of the limitation period
The tax authorities can only reassess a tax within a certain period, called the limitation period (délai de reprise). For income tax and corporate income tax, it in principle expires at the end of the third year following the year for which the tax is due. It may be longer in certain cases, in particular where accounts or assets held abroad have not been declared (ten years, subject to conditions).
A reassessment proposal notified after this period has expired is in principle out of time, and the limitation period can then be raised against the tax authorities. The details are set out in the article on time limits for reassessment.
Summary table of the 12 procedural defects
| Procedural defect | Provision or source | Possible consequence |
|---|---|---|
| Audit lasting more than three months (small business) | LPF, art. L52 | Nullity of the assessment, subject to exceptions |
| No audit notice | LPF, art. L47 | Procedure in principle irregular |
| Incomplete notice or charter not provided | LPF, art. L47 and L10 | Possible irregularity, depending on the omission |
| No statement of the right to be assisted by an adviser | LPF, art. L47 | In principle, nullity of the procedure |
| Documents obtained from third parties not disclosed | LPF, art. L76 B | Possible discharge of the taxes concerned |
| Insufficient time to arrange assistance | Case law | Possible irregularity |
| No oral and adversarial debate | Case law | Possible discharge |
| New audit of a period already audited | LPF, art. L51 | Procedure in principle irregular |
| Insufficiently reasoned reassessment proposal | LPF, art. L57 | Possible irregularity |
| Hierarchical appeal requested but refused | Charter of the audited taxpayer (LPF, art. L10) | Possible irregularity |
| Commission not consulted despite a valid request | LPF, art. L59 | Possible irregularity |
| Limitation period expired | LPF, art. L169 et seq. | Time-barred: in principle, no reassessment possible |
As every audit is different, the firm can analyse the procedure followed and the arguments that may, depending on the case, be raised.
What I see in my cases
In the reassessment proposals I examine, the weaknesses lie primarily in procedural errors, particularly when the procedure drags on, with successive appeals and exchanges. This is one of the first things I check, along with the limitation period: I have fairly regularly had reassessments annulled for procedural irregularity or because they were time-barred. The merits come next; in international cases, it is possible to put the tax authorities in a difficult position on technical points with which they are not very familiar.
FAQ
Does a procedural defect necessarily lead to the cancellation of the reassessment?
Not necessarily. Some irregularities are, as a general rule, sanctioned by nullity by virtue of the law itself, such as exceeding the three-month limit for a small business or failing to state the right to be assisted by an adviser. For the others, cancellation in principle requires that the irregularity deprived the taxpayer of a safeguard or may have influenced the decision. Only an analysis of the file makes it possible to assess the impact of a defect.
When can a procedural defect be raised?
A procedural defect can in principle be raised during the audit, in the observations in reply to the reassessment proposal, and then in a claim (réclamation) and before the court. The choice of when and how to raise it is a matter of strategy, best defined with a lawyer.
Do these safeguards also apply to individuals?
To a large extent. Several of the safeguards described here concern the business tax audit, but comparable safeguards apply to the in-depth review of an individual’s personal tax situation (examen contradictoire de la situation fiscale personnelle, ESFP): a prior notice stating the right to be assisted by an adviser, a duration in principle limited to one year, a reasoned reassessment proposal, disclosure of documents obtained from third parties and compliance with the limitation period. The desk audit (contrôle sur pièces), conducted from the tax office, is subject to lighter rules.
