How does an accounting audit (vérification de comptabilité) work?
Surprise audits are rare. Generally, the letter is received about two weeks before the audit, although the legal minimum notice period is two working days.
D-15: notice of accounting audit, letter 3927
It is possible to postpone this date... But postponing an audit often gives the impression of a "quick clean-up of the accounting files". Quite clearly, this is generally frowned upon, unless there are exceptional and duly justified circumstances.
D-Day: meeting at the company's premises
The inspectors will certainly have carried out a prior desk review, in addition to the automated information exchanges that connect the various administrative departments. The first meeting generally has two objectives for the officer in charge of the audit:
- Obtaining the accounting entry files (the "FEC", fichiers des écritures comptables)
- Obtaining general oral information about the audited company: business activity, shareholders, subsidiaries, suppliers, customers, locations worldwide, organisation...
The accounting and legal documents, as well as stock inflows and outflows, will then be scrutinised at the tax office in order to detect, typically:
- A failure to declare
- Fraud
- Errors made in good faith or in bad faith
- Failures to file and VAT fraud
- One or more abnormal management acts (actes anormaux de gestion)
Prepare as many supporting documents as possible to substantiate your transactions during the period under review. From customers to suppliers, including staff and accounting software, your business will generally be carefully analysed.
The audit most often takes place at the company's premises, sometimes at the offices of the chartered accountant or those of the auditor (at the express request of the taxpayer).
3 forms of audit
1. General accounting audit (covering the entire business)
2. Review of a short period, which is then specified in the audit notice
3. Extension of the accounting audits through an in-depth review of the personal tax situation (Examen Contradictoire de Situation Fiscale, ESFP) (personal income tax returns of the company's executive)
For each of these, you may be assisted by a tax professional.
Their involvement is generally important from the very start of the procedure.
Many companies do not call on one at the outset, believing they can handle the audit in-house (with their accountants and administrative and financial managers). The outcome is generally poor. This is mainly because internal staff will apply their own financial logic, and see problems where there are none, or think that everything has been properly handled where there are in fact major shortcomings.
Tax law indeed has its own particularities, which are not always in line with conventional economic and financial reasoning.
What you say during the audit and the documents you provide may therefore, surprisingly for the company, be used against it; hence the need to be assisted by a tax lawyer.
This audit phase is extremely important, because the reassessments will stem from it. If it is poorly handled, the reassessments will be for large amounts. If it is well handled, they can be drastically limited.
Procedure and obligations of the taxpayer during an accounting audit
The audit may not last more than three months for small businesses whose turnover does not exceed the thresholds of the simplified real regime (régime réel simplifié) (Article L52 of the Tax Procedures Handbook (Livre des procédures fiscales, LPF)).
Limitation period and deadlines
Your financial years can no longer be reassessed after Y+3: to be clearer, the 2019 financial year can no longer be reassessed as from 1 January 2023. Failure to comply with these time limits cancels the reassessments. It is the date of receipt of the proposed adjustment that counts.
Accounting audit that has resulted in reassessments: what next?
The auditor sends, in writing, the outcome of the audit and any penalties decided upon, by means of a "proposed adjustment (proposition de rectification)" (letter 3924). This document summarises the grounds for the reassessments and the amounts reassessed. The company has 30 days to contest this proposal, failing which it will be deemed to have tacitly accepted it (which nevertheless does not deprive it of the right to file a claim after the tax has been placed in collection). You may request a 30-day extension of this time limit (ideally in writing on paper, keeping a copy as well as the acknowledgement of receipt).
In your observations, you will explain why you consider the reassessments proposed by the tax authorities to be unfounded.
Be careful: once again, this is not a matter of coherent reasoning or financial or economic logic, but of tax law.
Methodically, point by point, regarding both procedure and the substantive arguments of the tax authorities, the aim is to dismantle the position of the tax authorities, relying on legal texts (statutes, decrees, administrative guidelines, case law...).
Following your observations, the tax authorities send their "Response to the taxpayer's observations", known as letter 3926. The decision must be reasoned and justified by specific legal texts.
If the dispute persists, you may refer the matter to other bodies:
- in certain cases, the Commission for Direct Taxes and Turnover Taxes (commission des impôts directs et des taxes sur le chiffre d'affaires)
- the conciliator (conciliateur).
It is also possible to refer the matter to the hierarchical superior of the officer who carried out the audit: this is the hierarchical appeal (recours hiérarchique).
A meeting will be scheduled. You will then have the opportunity to "plead" your case orally, directly before the "boss" of the officer who carried out the audit.
If well prepared, this meeting can show the tax authorities that you have "ammunition": that the audit carried out by the officer is far from perfect — procedural weaknesses, ill-suited arguments, texts relied on that are ill-suited to your specific case... Basically, the idea is to show the tax authorities that their work has major gaps and that, before a judge, the reassessments could well be cancelled.
This will allow you:
- in the best case, to be relieved of all or part of the reassessments
- in other cases, to lay favourable ground for future negotiation
If the reassessments are upheld following the hierarchical appeal, you will receive the tax notice relating to the reassessments (this is called placing the tax in collection, or mise en recouvrement). This is the document telling you that you have to pay.
At this stage, you can contest this notice by filing a claim, which may be accompanied by a request for a stay of payment (sursis de paiement).
If you request a stay of payment, you will have to provide guarantees (mortgage, sums blocked in a bank account of the tax authorities, pledge...).
The tax authorities must respond to your claim. They may then either abandon the reassessments or reject your claim.
If your claim is rejected, you will have two months to bring the matter before the court.
Our tax law firm can assist you.
