The ESFP: the steps in detail
A procedure used in the tax audit of an individual, the in-depth review of the personal tax situation (examen de la situation fiscale personnelle, ESFP) aims to verify the consistency between the returns filed and reality. Documents and information may have to be provided throughout the procedure. As it follows several stages, it is worth understanding how the tax authorities operate.
Sending of an audit notice
The procedure begins with this notification being sent to the taxpayer concerned. Sent by registered letter with acknowledgement of receipt, it states that an inspector is going to examine the financial and personal situation of the person receiving the notice.
The ESFP covers all members of the tax household. Even if the notice is sent to one particular person, everyone who is part of their household will be concerned.
The notice must mention the possibility of being assisted by an adviser. The Charter of the audited taxpayer (charte du contribuable vérifié) is enclosed with the letter to inform the taxpayer of their rights and obligations.
In this letter, the tax authorities state that the taxpayer has 60 days to provide all their bank account statements, as well as those of accounts used for transactions other than everyday ones. Financial accounts of all kinds and current accounts will be closely scrutinised.
Analysis of supporting documents
Once all the documents required for the review of the personal and financial situation have been gathered, the analysis phase can begin. Movements on the various financial accounts will be among the items examined. Current accounts, but also those held with brokerage institutions, a business’s accounting entries or notarial deeds, will make it possible to check whether the returns match the information found.
Mixed accounts will also be of interest to the tax officer. As they are used for both personal and business purposes, errors may occur. It is therefore important to check that the distinction between the business and the private account is properly maintained.
Foreign accounts also receive the auditor’s full attention. These accounts must indeed be declared. Where this is not the case, a tax reassessment will often follow.
The oral and adversarial discussion
Once the documents have been examined, the tax officer will point out the errors and omissions identified. The discrepancy between lifestyle and the returns filed may also be raised.
For their part, the taxpayer may be assisted by an adviser in order to deal with these issues. Useful both for their tax expertise and for their strategic skills in managing the relationship with the tax officer, the adviser can help find the right arguments to put forward during this discussion.
The review of financial movements reveals no error
In this situation, the oral and adversarial discussion is very simple. The consistency between the returns and the findings will simply be noted. The tax audit therefore ends, since the procedure has led to no findings. A notice of no adjustment will be sent.
Questions remain
Where sums have no logical explanation or the taxpayer refuses to cooperate, a new procedure will be triggered. The lack of concrete justifications will indeed lead to an even more serious process.
The written procedure
In the absence of valid arguments, the representative of the tax authorities will send a request for justification no. 2172-SD covering the years concerned by the ESFP. The taxpayer has 2 months to respond to this request. This period should be used to justify the nature and origin of the sums being questioned. This written procedure can generally only take place if the sums amount to twice the declared income or exceed it by at least €150,000.
If the first response to this request for justification is not satisfactory, the officer in charge of the file may send a second one, indicating the grey areas that remain. For this new request, the taxpayer has 30 days to provide additional supporting documents.
At the end of this period, the auditor will make an adjustment of the tax, taking into account all unjustified sums. An official proposed adjustment is sent to the taxpayer, referring to income of undetermined origin (revenus d’origine indéterminée). A new tax base is calculated and the tax will therefore be calculated on this new amount. This procedure generally results in sums to be paid.
Possible remedies
Following the proposed adjustment (proposition de rectification), the taxpayer may respond, making a final attempt to justify the sums concerned or to put forward convincing arguments. The adviser’s help will be very important at this stage.
This response will be carefully examined by the tax officer. Their role is to indicate whether the evidence provided makes it possible to amend the proposed adjustment or to cancel it. If not, it remains valid. In all cases, a response to the taxpayer’s observations is mandatory. It will set out the tax authorities’ decision following this response.
A hierarchical appeal to the superior may be made, as indicated in the taxpayer’s charter. The departmental contact person (interlocuteur départemental) may also be contacted to request a fresh review of the file.
The last possible remedy is referral to the Departmental Commission for Taxes and Turnover Taxes (commission départementale des impôts et taxes sur le chiffre d’affaires). In order to take this last step, the request must be made within 30 days of receiving the tax authorities’ response to the taxpayer’s observations. Otherwise, the referral may be refused.
This commission is able to assess the supporting documents presented to the officer in charge of the ESFP. It may also receive new evidence that may have an influence in this appeal. The analysis of all the documents in the file will enable an objective decision to be made.
At the end of this review, the departmental commission will issue an opinion. This opinion is purely advisory: it binds neither the tax authorities nor the taxpayer, but it has an impact on the burden of proof in the event of subsequent litigation. This last stage therefore makes it possible to conclude the ESFP procedure. A final notice will be sent to the taxpayer reminding them of the sums that will be placed in collection.
If the taxpayer wishes to contest the placing in collection (mise en recouvrement), they must file a claim, possibly accompanied by a request for a stay of payment.
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