Companies undergoing a tax audit are subject to a procedure known as an audit of accounts (vérification de comptabilité). On this occasion, the designated tax officer will carefully check the returns filed against the actual accounting entries. The corresponding ledgers and documents will therefore be scrutinised in detail.
The officer's role is also to satisfy himself, on the basis of evidence, of both the good faith and the accuracy of the accounts made available. To do so, he may exercise his right of disclosure (droit de communication) with other companies or bodies with which the company has dealings.
During this procedure, specific stages are followed, and the assistance of a tax lawyer appears advisable if the stakes are high.
Preparation for the audit of accounts
Before sending a notice of tax audit to the company concerned, the representative of the tax authorities will collect all possible information about it.
The various returns filed with the tax authorities are retrieved.
He will also contact a number of bodies to obtain the data they hold. The right of disclosure makes it possible to build up a complete file.
Thanks to this preparation, the auditor will be able to compare his data with the information that will be made available to him during the procedure. Any discrepancy will have to be justified, failing which it will result in a tax reassessment.
Sending the notice of audit of accounts
Before visiting the company, the tax officer is required to send this notice of audit of accounts (avis de vérification de comptabilité).
This document states the purpose of the audit, specifying the years concerned. The corresponding financial years must therefore be ready on the day the auditor arrives.
A reasonable period (the law does not set a duration; the Conseil d'État (Council of State) has held that a period of two clear days is sufficient) will be granted to the company to gather the requested documents and be able to present them at the time of the audit of accounts. It may also use this time to arrange to be assisted by an adviser with advanced expertise in business taxation, in particular a tax lawyer.
It is the company's manager who chooses the adviser responsible for assisting it. Appointing an adviser is not mandatory; the manager may choose to defend the company alone. However, it is strongly recommended not to defend oneself alone.
The adviser chosen, if any, may be anyone, whether a professional or not. Of course, it is advisable to use a seasoned professional who is a genuine tax expert. The profile that appears most suitable is, of course, that of a tax lawyer.
Carrying out the audit of accounts
Once on site, the officer can carry out the audit in practical terms. He may check both the substance and the form of the financial statements and accounting documents. Physical inspections also fall within his powers. The accounting procedures applied will be subject to a thorough analysis, as will the company's legal documents. This stage will generally conclude with a tour of the company as a whole.
The summary meeting
At the end of the audit, a meeting is held with the auditor and a representative designated by the company. The company may be accompanied by a person responsible for advising it throughout the procedure. This summary meeting (réunion de synthèse) takes place at the company's premises, but it may also be held at the tax office to which the company reports.
Preparation of a report by the auditor
Whatever the observations made during the audit of accounts, the officer designated for this procedure must draw up a detailed report. As this document will be submitted to his superiors, it must set out the errors and anomalies identified as well as the corresponding proposed adjustments. The initial proposed tax adjustments may be compared with those ultimately upheld following the actual audit of the accounts. This report is therefore useful because it shows exactly what action the tax authorities appear to intend to take following the audit.
Conclusion and sending of the final notice
After the audit and the analysis of the observations made during the audit phase, the reassessment proposal decided on by the tax authorities will be sent to the company concerned. This document may state that there is no reassessment where evidence justifying the situation was provided during the audit of accounts.
This notice may also take the form of a tax reassessment proposal (proposition de rectification) based on the observations made by the auditor. In that case, the document states that the company may be assisted by an adviser in order to make the right decision. A discussion may be opened with this adviser and a reply may be sent to the tax office.
The company's reply
On receipt of the notice, the company has 30 days to send a reply. It may provide new information or submit certain observations in order to reduce the amount of the proposed reassessment. This period may be extended by a further 30 days under certain conditions.
In other words, this reply will be either the acceptance, in part or in full, of the adjustments, or the challenge, in part or in full, of the adjustments. This reply is called the "taxpayer's observations (observations du contribuable) ". The deadline for submitting observations is in principle 30 days, but may be extended to 60 days at the taxpayer's request.
Second reply from the tax authorities
After reviewing the reply (its "observations") of the company subject to the audit of accounts, the authorities will decide whether to reject or accept them. Depending on the decision, a reply to the taxpayer's observations will be sent. The adjustments are either maintained or abandoned, in part or in full.
Possibility for the company to refer the matter to the departmental commission
If the company still raises objections and rejects the reassessment proposal, it may refer the matter to the departmental or even the national commission so that it can examine its file. This is the last possible remedy at the pre-litigation stage when the tax reassessment procedure is contested. This commission is made up of representatives of the tax authorities, representatives of taxpayers and representatives of the judiciary.
Decision to collect the reassessed tax
Even if the reassessment is contested, the company must still pay the sums claimed, except in the case of a tax claim (réclamation) accompanied by a request for a stay of payment (sursis de paiement) (but in that case the company will have to provide security). In the absence of payment, the tax authorities may order enforced collection (generally, administrative third-party holder attachments (saisies administratives à tiers détenteur) on bank accounts, or other types of seizure, such as seizures of real estate, attachment of trade receivables, immobilisation of the vehicle fleet, etc.).
Appeal before the Administrative Court
As a last resort, the company may bring the matter before the administrative court (tribunal administratif) to challenge the reassessments. Where the dispute between the company and the tax office cannot be resolved, the court will be able to rule so that the case is settled. Whatever the court's decision, both parties must comply with it scrupulously. An appeal to the Administrative Court of Appeal (Cour administrative d'appel) remains open to the parties.
If the court rejects the company's claim, the company will be obliged to pay the sums claimed from it. If the administrative court calls into question the conclusions of the tax authorities, it may decide to reduce the amounts or to cancel the reassessment proposals (where a procedural defect is identified).
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