An incomplete return, anomalies or vague explanations may lead the French tax authorities to initiate a tax audit. In this context, certain attitudes generally make the audit run more smoothly, while others may complicate it.
This article reviews the practices most often observed, from the first letter from the tax authorities to the discussion of the adjustments. As every audit is different, these guidelines do not replace an analysis of the situation by a lawyer.
In brief
- A request for information is not binding, but a prompt and precise reply often prevents the matter from escalating.
- A request for clarification or justification calls for a reply within the set period, of at least two months; failing that, an ex officio assessment is possible.
- During the audit, a courteous attitude and answers limited to the questions asked are generally preferable.
- Obstruction of a tax audit may lead to a 100% surcharge on the additional tax.
- After the reassessment proposal, several amicable avenues exist: hierarchical appeal, departmental contact person, commissions, request for leniency, settlement.
Contents
- Replying to requests for information
- Requests for clarification or justification
- Requesting postponement of the first visit
- A courteous attitude towards the auditor
- The risk of saying too much
- The assistance of a lawyer
- A low-key welcome for the auditor
- Obstruction of a tax audit and its consequences
- Avenues for discussion with the tax authorities
- The request for leniency
- The settlement
- What I see in my cases
- FAQ
Replying to requests for information
A request for information is not binding: failing to reply in principle entails neither a penalty nor an ex officio assessment. The tax authorities do, however, often indicate a period for replying, in practice of around thirty days.
Where the situation is in order, a prompt and precise reply, ideally prepared with a lawyer, often dispels the tax authorities’ doubts and avoids a reassessment proposal. Conversely, silence may be misinterpreted and lead the tax authorities to initiate a more binding procedure, such as a request for clarification or justification.
Requests for clarification or justification
These requests, often made on form no. 2172 and sent by registered letter with acknowledgement of receipt, call for a reply within the stated period, which may not be less than two months. Failing to reply to a request for justification, or a reply amounting to no reply, allows the tax authorities to make an ex officio assessment (article L69 of the Tax Procedure Code, LPF), with a 40% surcharge if they establish a deliberate failure.
A reply given within the time limits, clear and supported by documents, is generally the best way to demonstrate the transparency of the situation. Depending on the case, it can be prepared with a lawyer.
Requesting postponement of the first visit
On receiving an audit notice, it may be tempting to ask for the date of the first visit to be postponed. Such a request may be justified, for example to allow the chosen adviser to be present or to gather the documents requested.
On the other hand, repeated or insufficiently reasoned requests for postponement may be perceived as an attempt to delay the procedure. They generally only defer the issues to be dealt with, and delaying tactics may even, in the most serious cases, be characterised as obstruction of a tax audit.
A courteous attitude towards the auditor
A cordial relationship with the auditor generally makes the audit run more smoothly. Systematic challenges or an aggressive attitude, on the contrary, risk being counterproductive: they may give the impression that something is being hidden and prompt the auditor to dig deeper.
In a business tax audit, the auditor is often given a quiet office, away from documents unrelated to the audit. Any disagreement on the merits can then be expressed, with reasoned arguments, at the stages provided for by the procedure.
The risk of saying too much
Under stress, some taxpayers say more than they are asked. As the information provided may be used by the tax authorities, it is generally preferable to stick to the questions asked and to take time to reflect when unsure of the answer to give, with the help of a lawyer where appropriate.
In a business audit, a single contact person is often designated for exchanges with the auditor, so that the information provided is consistent and checked.
The assistance of a lawyer
The assistance of a professional, such as a lawyer, can prove very useful throughout the tax audit. It covers two levels:
- The merits: examining the grounds put forward by the tax authorities. Are the proposed adjustments justified in law and in fact?
- The procedure: examining the procedural rules governing the audit, a breach of which may, in some cases, lead to the cancellation of the additional tax.
The procedural points frequently examined include in particular:
- the statement, in the audit notice, of the right to be assisted by an adviser;
- the indication of the years being audited;
- the provision of the Charter of the rights and obligations of the audited taxpayer;
- compliance with the oral and adversarial debate;
- compliance with the limitation period;
- where surcharges for deliberate failure are applied, the reasons given for them and their approval by an officer of sufficient rank (article L80 E of the LPF).
These points, and others, are detailed in the article on procedural defects in tax audits.
A low-key welcome for the auditor
Officers of the French tax administration (DGFiP) are attached to the independence of their role. Welcoming the auditor surrounded by numerous advisers and colleagues, as a show of strength, risks complicating the audit and prompting the auditor to be more meticulous. A welcome in a small group is generally preferable; any errors by the auditor can then be pointed out, with a lawyer, in particular at the reassessment proposal stage.
Obstruction of a tax audit and its consequences
Obstruction of a tax audit (opposition à contrôle fiscal) refers to a situation where the audit could not take place because of the taxpayer or third parties. This is the case in particular where the taxpayer:
- is absent on the date set for the start of the audit and remains unreachable for a long period;
- refuses to provide his or her accounts or supporting documents, or provides only very incomplete information;
- delays the audit through delaying tactics.
The consequences are serious: the tax bases may be assessed ex officio (article L74 of the LPF), and the additional tax is then in principle subject to a 100% surcharge (article 1732 of the French Tax Code, CGI).
Avenues for discussion with the tax authorities
Where additional tax is claimed following the audit, a formal claim (réclamation contentieuse) followed, where appropriate, by an appeal to the court is not the only option. Depending on the case, amicable avenues make it possible to discuss the tax reassessment:
- the hierarchical appeal: a meeting with the auditor’s hierarchical superior, which makes it possible to present arguments on the merits and on the procedure directly;
- the departmental contact person (interlocuteur départemental), who may be approached where disagreements remain after the hierarchical appeal;
- referral to a commission or committee with jurisdiction depending on the nature of the dispute, for example the departmental commission for direct taxes and turnover taxes or the abuse of tax law committee.
The request for leniency
The request for leniency (demande gracieuse) does not make it possible to challenge the merits of the additional tax. It makes it possible to request a waiver or reduction of penalties (surcharges, fines) and, in the event of financial hardship or indigence, of certain direct taxes (article L247 of the LPF). The tax authorities are free to decide how to respond.
The settlement
Where fines or surcharges are at stake, and as long as they are not final, a settlement (transaction) makes it possible to negotiate a reduction of these penalties with the tax authorities. In return, the taxpayer in principle undertakes to pay the sums remaining due and waives any challenge.
The tax authorities are not obliged to accept a settlement, and it is in principle not possible where they intend to bring criminal proceedings for tax fraud. Depending on the case, it may make it possible to close the matter more quickly.
As every audit is different, the firm can assist you at each of these stages.
What I see in my cases
The advice I give almost all my clients can be summed up in one phrase: not to be more royalist than the king. Under stress and emotion, people tend to say too much, do too much, and anticipate the tax authorities’ questions to show they are above board. In my experience, it is generally more effective to move forward step by step, in a controlled “ping-pong”: answering exactly and precisely what is asked, without providing more information or documents than necessary, which obviously does not mean hiding anything. Overreacting is often a mistake.
In writing, by phone or in meetings, my exchanges with the tax authorities are cordial and respectful, in a spirit of mutual understanding: I play the game, without overplaying it, and the departments concerned then generally prove accommodating and open to discussion. I also like to get ahead of reply deadlines rather than wait until the last minute.
FAQ
Is it compulsory to reply to a request for information from the tax authorities?
No: a request for information is not binding, and failing to reply in principle entails neither a penalty nor an ex officio assessment. In many cases, a precise reply may nevertheless quickly dispel the tax authorities’ doubts. Requests for clarification or justification, on the other hand, are in principle binding.
Can postponement of the start of an audit be requested?
A request for postponement is possible, in particular to allow the chosen adviser to be present. The tax authorities are in principle not obliged to accept it, and repeated postponements may be poorly perceived, or even, in the event of delaying tactics, be characterised as obstruction of a tax audit.
What is obstruction of a tax audit?
It is a situation where the audit cannot take place because of the taxpayer or third parties: prolonged absence, refusal to provide documents, delaying tactics. It allows the tax authorities to assess the tax bases ex officio and in principle entails a 100% surcharge on the additional tax.
What is the difference between a request for leniency and a formal claim?
A formal claim challenges the merits or the regularity of the tax and may be followed by an appeal to the court. A request for leniency does not challenge the tax: it seeks a waiver or reduction, mainly of penalties, which the tax authorities are free to grant or refuse.
