In many people’s minds, a tax audit is synonymous with stress and arbitrariness: denunciations, an inspector going through every expense, an endless review triggered for no reason. In reality, the tax audit is a highly regulated procedure, and its most in-depth forms remain relatively rare for individuals.
For several years now, however, the automated cross-checking of data (automatic exchange of information between States, reporting by platforms, data mining) has changed the game: today, it is less random audits than detected anomalies that trigger the review of a file.
Here are the main misconceptions, compared with the rules that actually govern the tax audit of individuals.
In brief
- Most audits of individuals are desk audits, conducted from the tax office.
- In-depth audits (review of the taxpayer’s personal tax situation) are rarer and in principle take place at the tax authorities’ premises.
- Files are mainly selected on the basis of data cross-checks, including information received from abroad, rather than following denunciations.
- The right to audit is limited in time: in principle three years for income tax, ten years in certain cases, in particular for undeclared accounts held abroad.
- The audit is governed by procedural rules, a breach of which may lead to the cancellation of the additional tax.
Contents
- Misconception no. 1: the tax authorities are carrying out more and more in-depth audits
- Misconception no. 2: the inspector comes to search your home
- Misconception no. 3: only low- or middle-income households are audited
- Misconception no. 4: an audit always follows a denunciation
- The reality: files selected by data cross-checking
- Disclosure of information to the tax authorities: an obligation for third parties
- Limitation periods: a limit on audits
- Procedural rules: the guarantee of a fair review
- What I see in my cases
- FAQ
Misconception no. 1: the tax authorities are carrying out more and more in-depth audits
In most cases, audits of individuals are desk audits (contrôles sur pièces): the tax authorities analyse the returns from their office, compare them with the information they hold and check the consistency of the file as a whole. If no anomaly appears, the taxpayer is often not even aware of it.
Where the tax authorities consider it necessary, they may send the taxpayer a request for information, clarification or justification, or even notify a reassessment. In-depth audits, such as the review of the taxpayer’s personal tax situation (ESFP) or the business tax audit, remain proportionally rarer.
Misconception no. 2: the inspector comes to search your home
For individuals, the review of the personal tax situation in principle takes place at the tax authorities’ premises, on the basis of the documents requested and bank statements. The taxpayer may be invited to a meeting, accompanied by his or her adviser where appropriate. A business tax audit, on the other hand, in principle takes place at the business’s premises.
Home searches do exist, but they are a separate and exceptional procedure, authorised by a judge where fraud is presumed (article L16 B of the Tax Procedure Code, LPF).
Misconception no. 3: only low- or middle-income households are audited
This is not the case. Taxpayers with significant income or wealth are, on the contrary, specially monitored: in practice, so-called “high-stakes” files generally undergo an in-depth desk audit about every three years. International situations (foreign-source income, accounts held abroad, change of residence) also receive particular attention.
Misconception no. 4: an audit always follows a denunciation
Denunciations, especially anonymous ones, rarely trigger an audit on their own: the tax authorities treat them with caution and favour precise and verifiable information.
Since 2017, however, the tax authorities may compensate “informants” (aviseurs) who provide them with information on certain serious frauds. This scheme was originally aimed at breaches with an international dimension, for example:
- failure to comply with the rules on tax domicile in France;
- international tax evasion schemes;
- failure to declare bank accounts held abroad.
Its scope has since been extended, in particular to certain VAT frauds.
The reality: files selected by data cross-checking
In most cases, files to be audited are selected on the basis of computerised cross-checks. The sources used may include:
- the national bank account register (Ficoba) and the register of life insurance and capitalisation contracts;
- the national database of property data;
- information transmitted by French and foreign administrations, in particular under the automatic exchange of information;
- reporting by online platforms and data mining.
The tax audit has thus become a highly technical procedure, in which the assistance of a lawyer can play an important role.
Disclosure of information to the tax authorities: an obligation for third parties
The denunciation myth is sometimes fuelled by the fact that the tax authorities have information that only the taxpayer’s bank seemed to know. In reality, banks and many other bodies automatically report certain information (opening and closing of accounts, investment income, etc.) and must respond to the tax authorities’ requests under their right of disclosure (droit de communication), on pain of penalties.
For accounts held abroad, the French tax authorities also receive information every year from partner States under the automatic exchange of information.
Limitation periods: a limit on audits
The tax authorities cannot audit indefinitely. Their right of reassessment is limited in time, depending on the type of tax:
| Tax | Limitation period in principle | Possible extension |
|---|---|---|
| Income tax | 3 years (until the end of the third year following the year for which the tax is due) | 10 years in the event of an undeclared activity or, subject to conditions, of undeclared accounts or contracts held abroad |
| Real estate wealth tax (IFI) | 3 years if the tax liability was sufficiently disclosed by the return, 6 years otherwise | 10 years, subject to conditions, in the event of undeclared assets held abroad |
| Property tax (taxe foncière) | Until the end of the year following the year for which the tax is due | Special rules in certain cases |
The details are set out in the article on time limits for reassessment.
Procedural rules: the guarantee of a fair review
The taxpayer is not defenceless: the tax audit is subject to numerous rules established in his or her favour. A breach of these rules by the tax authorities may, in some cases, lead to the cancellation of the reassessment. The irregularities frequently examined include in particular:
- no audit notice;
- failure to provide the Charter of the rights and obligations of the audited taxpayer;
- insufficient time to arrange assistance from an adviser, or no information about this right;
- failure to comply with the conditions for removing accounting documents.
Knowing one’s rights makes it possible to approach a tax audit more calmly; the assistance of a lawyer can help to assert them.
What I see in my cases
Other misconceptions deserve to be qualified. The first, and the most frequent in my cases: the idea that spending fewer than 183 days a year in France is enough not to be tax resident there. This is inaccurate: the criteria of Article 4 B of the French General Tax Code (CGI) are alternative. In principle, it is enough for the family to live in France, or for the main professional activity to be carried on there, to be resident there, whatever the number of days; the length of stay only comes into play where there is no home. The second: that regularising voluntarily would change everything. In my experience, the tax authorities may be slightly more lenient, but I do not see a great difference in treatment compared with a regularisation made at their request. The third: that one would have to say everything and provide everything to prove one’s good faith. In practice, saying too much often draws attention to other subjects; answering exactly and precisely what is asked is generally more effective.
Finally, a reassessment is not a foregone conclusion: the limitation period and the regularity of the procedure are among the first points I check, and I have fairly regularly had reassessments annulled on these grounds.
FAQ
Can a tax audit take place at an individual’s home?
In principle no: the review of the personal tax situation takes place at the tax authorities’ premises. Home searches do exist, but they are an exceptional procedure, authorised by a judge where fraud is presumed.
For how many years can the tax authorities go back over an income tax return?
In principle for three years: until the end of the third year following the year for which the tax is due. This period may be extended to ten years in certain cases, in particular in the event of an undeclared activity or, subject to conditions, where accounts or contracts held abroad have not been declared.
Do denunciations often trigger audits?
Rarely. Most files are selected on the basis of data cross-checks, in particular bank information and data received from abroad. The tax authorities may, however, compensate informants for certain serious frauds, mainly with an international dimension.
