A tax audit is an action carried out by the tax authorities to ensure complete consistency between the information declared and reality.
There are four types of tax audit in France.
Depending on your situation, the tax official may choose to use one form or another. Each procedure has its own specific features, and the insight of a tax lawyer will very often be necessary.
The formal review
This review is very simple, since it will merely correct errors you may have made in your returns.
It may, for example, take place after a request for additional information. When you explain that you made an error in your return, the official receiving this information can simply make a correction.
The formal review (contrôle formel) may also be used to ensure that all returns have been submitted. If one was forgotten, it will still be possible to take this step in order to complete your file. Where a return is missing, the tax authorities may indeed send a simple letter or a formal notice (mise en demeure). You will therefore have to take this step within a certain time limit indicated in the letter in order to regularise your situation.
You should be aware that the formal review is not an in-depth investigation but offers the opportunity to correct or complete a file. It is therefore advisable to take advantage of this opportunity to be fully compliant and avoid any future problems.
The desk audit
Carried out in the offices of the tax authorities, the desk audit (contrôle sur pièces) does not necessarily require the person concerned to be informed. All returns and supporting documents will be checked on this occasion.
If you are subject to this type of procedure, you will only be informed when inconsistencies or anomalies are discovered.
The desk audit may concern the returns of a business as well as those of a private individual.
It may be carried out to check your file for income tax, corporate income tax, inheritance, VAT and many other types of taxes or levies.
After information has been gathered both from the taxpayer themselves and from public bodies, the desk audit can begin. The right of disclosure (droit de communication) held by the tax authorities indeed allows them to obtain information from all the bodies with which you have dealings.
It is, for example, possible to obtain computer files, third-party returns, information provided by third parties, bank data and many other data. The consistency between this information and the returns filed will be checked.
During the desk audit or after this stage, the tax authorities may send you a request for information or clarification. A failure to respond may lead to an ex officio assessment (imposition d’office) on the basis of the information held.
An incomplete response leads to a formal notice to provide the relevant information to complete it within thirty days. While there is no legal obligation to respond to this request, the consequences of not responding may nevertheless be significant.
Where the anomalies remain significant despite the taxpayer's explanations, a reassessment procedure (procédure de rectification) may be initiated.
The accounting audit
The purpose of this type of tax audit, the accounting audit (vérification de comptabilité), is to check all the accounting entries of a business. It may concern a sole proprietorship as well as a company. A comparison with other data is carried out to ensure that the returns filed are accurate.
This accounting audit is carried out on the business's premises. It may cover industrial and commercial profits (BIC), non-commercial profits (BNC) or corporate income tax (IS), VAT and the territorial economic contribution (CET). This tax audit may also focus on a single tax only, such as VAT or corporate income tax.
When this procedure begins, a notice of audit (avis de vérification) is sent to the business concerned. It informs it that a procedure has been initiated by the tax authorities. This notice contains a number of useful pieces of information. In particular, you will find the type of tax to be audited as well as the corresponding period, the name and contact details of the tax official in charge of the audit, information about their superior, and details for contacting your departmental contact person (interlocuteur départemental) if necessary. The notice states that the Charter of rights and obligations of the audited taxpayer (Charte des droits et obligations du contribuable vérifié) can be consulted online and may be provided on simple request. It will allow you to know your rights during this procedure.
The bodies chosen to carry out this accounting audit vary according to the business's turnover:
• For turnover below 1.5 million euros: a departmental audit team (brigade de vérification départementale) will be sent
• For turnover between 1.5 and 152.4 million euros (76.2 million for service providers): you will deal with a DIRCOFI (regional tax audit directorate)
• For turnover above 152.4 million euros (76.2 million for service providers): the accounting audit is carried out by the DVNI (national and international audit directorate).
The in-depth examination of personal tax situation (ESFP)
This procedure, the in-depth examination of personal tax situation (examen de situation fiscale personnelle, ESFP), aims to check the consistency between the returns filed and the taxpayer's actual financial situation, actual cash position and lifestyle.
It is the tax audit of private individuals.
This type of tax audit may be carried out for all French residents but also for persons who do not reside in France, provided that they are subject to income tax in France.
This procedure is relatively rare in proportion to the number of individual taxpayers. The triggering of such a procedure is almost always linked to major anomalies identified by the tax services during a desk audit, or following information provided by third parties (often, your bank).
The procedure begins with the sending of a notice of audit stating the matters that are the subject of this ESFP. It also contains information on the tax years concerned as well as the names and contact details of the officials involved. This notice also states that the procedure may last one year. This time can be used to your advantage to build up evidence and a defence in order to avoid a reassessment procedure.
Following this notice, a meeting will be scheduled with an inspector at the premises of the DGFiP (French Public Finances Directorate General), which you may attend with an adviser of your choice, for example a tax lawyer.
At the meeting with this inspector, you will need to be able to present the following documents:
• The list of bank accounts held in France and abroad
• A copy of all your bank statements
• All information making it possible to determine the assets held
• The list of movable and immovable property in your possession
An initial review will be carried out on the basis of this information, but the inspector may request further information throughout the year.
This procedure is generally quite long (6 to 12 months, in general) and involves several meetings with the tax authorities (3 to 6, in general).
In this type of procedure, it is strongly advisable to be assisted by a tax lawyer from the outset. The final bill could be drastically reduced, and your professional will ensure that a relationship of "mutual understanding" is maintained with the tax authorities in order to preserve a climate that can only be favourable to you and, above all, prevent other types of action from being triggered, such as an ex officio assessment.
The strategy adopted by your tax lawyer will be to demonstrate your good cooperation while using all the rights available to you to defend yourself effectively.
