Among the tax audits carried out each year, the desk audit (contrôle sur pièces) is often the first stage leading to a reassessment. It makes it possible to verify certain items in tax returns by means of supporting documents that must demonstrate their consistency. Depending on the findings, a tax reassessment may be considered. It is therefore essential to respond to it with the utmost care.
How a desk audit is conducted
It is important to know that this procedure is not carried out on site. On the contrary, it is conducted remotely. No prior notice is sent to the taxpayer, unlike an audit of accounts (vérification de comptabilité) or an in-depth examination of personal tax situation (examen de situation fiscale personnelle, ESFP) (Article L47 of the French Tax Procedure Code (Livre des procédures fiscales, LPF)). The taxpayer is only informed if the tax authorities (administration fiscale) send a request for information or for justification, or a proposed tax adjustment (proposition de rectification).
However, throughout its duration, the officer in charge of the desk audit may ask the company concerned to provide all kinds of documents and supporting evidence. A letter will be sent setting out all the items required for the examination of the file. The company has only 30 days to send them to the tax authorities.
The request for information
The purpose of this type of request is to obtain an explanation of certain figures or certain transactions. This type of request does not require concrete evidence to be provided at this stage. The tax authorities then rely on the good faith of the audited company.
This request is generally made in writing. Where the written route is chosen, the time limit for replying is clearly stated. There is no obligation to reply to this request for information and no penalty is provided for. However, failure to reply may lead to a more thorough tax audit.
The request for justification or clarification
In this specific case, however, evidence must be provided. This type of request (Article L16 of the LPF) concerns income tax and therefore mainly targets individuals. It should be noted, however, that failure to reply may lead to an ex officio assessment (taxation d’office). Insufficient replies may also lead to this penalty.
This request may concern the taxpayer’s family situation and dependants, deducted expenses, assets and income held abroad, items substantiating investment income, capital gains on real estate, and the amount of total income. The desk audit should therefore not be underestimated, as it will examine a large amount of the information contained in the returns filed.
The taxpayer has two months to provide justification in response to the requests made by the tax authorities. An extension may be granted on request. Where the reply is deemed incomplete or insufficient, a formal notice to supplement the points raised will be sent on form 2172 bis. Where an adjustment may be decided in light of the supporting documents provided, the taxpayer will be notified. Where the replies are evasive, an ex officio assessment may be decided.
During this period, the officer in charge of the desk audit may also request a number of documents or supporting evidence from third parties. Provided they have been in contact with the company, this search for additional information will be useful to the file.
In this respect, the tax authorities may exercise their right of disclosure (droit de communication) with the following third parties:
• Government bodies: Urssaf, social security, CAF (family allowance fund)…
• Customers and suppliers
• Banks and financial institutions
What items are audited?
The first stage of the desk audit consists of verifying that the company has indeed filed all its returns. This covers both corporate income tax and VAT. The mandatory accounting documents must also have been kept by the company. These include, in particular, balance sheets, income statements and the relevant notes.
Verification of company returns
Certain basic items are verified first:
• The legal form of the company
• The activities carried out within the company
• The location of the company
The tax authorities will then examine all the documents provided:
• Does the VAT correspond to the declared turnover?
• Do social security charges and salaries correspond to the number and qualifications of employees?
• The consistency of inventory turnover
• Have tax losses been carried forward correctly?
All these items will lead to findings. They may be in line with the tax authorities’ expectations. Where errors or omissions are identified, these inconsistencies will be noted with a view to possibly initiating a tax audit procedure on the basis of these items.
Verification of individuals’ returns
The desk audit is primarily concerned with the consistency of tax returns. It is therefore customary for the tax authorities to examine:
• Family situation: children attached to the tax household, deduction of child maintenance payments, declaration of single-parent status
• Declared expenses: year concerned, eligibility for a tax reduction, allowance or tax credit
• Salaries and pensions: consistency with the information collected from third parties such as the employer, the pension fund or unemployment insurance
• Property income, with a review of the assets, the income generated by those assets and the expenses declared
The tax file will also be reviewed to ensure that everything is in order. It is important that the following items are consistent:
• Movements in assets
• New events concerning the professional situation
• A significant change in income
• A change in the share portfolio
Finally, the desk audit of an individual will also examine the consistency balance (balance de cohérence). This is the difference between declared income and current expenditure, i.e. the taxpayer’s lifestyle.
The outcome of the desk audit
Once the desk audit has been carried out, three situations may arise:
• The tax authorities have received the requested documents and supporting evidence and the file is therefore closed.
• The supporting documents have revealed irregularities, and a reassessment may therefore be decided.
• The tax authorities have not managed to obtain all the information requested. They consider that the company or individual is acting in bad faith and is not being transparent. In this case, a more in-depth tax audit may be decided, in particular an audit of accounts or an ESFP.
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