When the tax authorities audit you, whether you are a company or a private individual, they must follow a very strict procedure.
This procedure is complex and highly detailed, as is always the case with tax law.
I will be practical and get straight to the point.
At the end of the audit, the tax authorities send you what is known as a tax reassessment proposal (proposition de rectification). In fact, this is the document that informs you of the tax adjustments charged to you.
Here are the 5 points that the tax authorities must absolutely comply with, failing which the tax audit and therefore the related adjustments will be annulled. Of course, if the stakes are high, it seems advisable to call on a tax lawyer.
1- the tax reassessment proposal must be signed by an officer who has the authority to do so (generally, from the rank of controller upwards). His or her name must be stated.
2- the tax reassessment proposal must state sufficient reasons: the tax authorities must explain and substantiate each of the adjustments applied
3- the tax reassessment proposal must be sent no later than 31 December of the third year following the year audited, as regards income tax, corporate income tax and VAT (the main taxes). Example: for 2016 income tax, declared in 2017, the tax authorities will have to send the tax reassessment proposal no later than 31 December 2019.
4- the tax authorities must have complied with the adversarial principle (principe du contradictoire): they must have asked you on several occasions for clarifications, explanations, documents, etc. on the points that seemed contentious to them. In practice, they cannot impose adjustments on you directly without first having asked you for explanations on the contentious points.
5- a year that has already been audited cannot be audited again for the same taxes. In practice, if your 2016 corporate income tax has already been subject to an audit, the tax authorities can no longer, save for the exceptions provided for by law (Article L51 of the Tax Procedure Code (Livre des procédures fiscales, LPF)), audit that tax again for that year.
If any of these points is not complied with, the adjustments may be annulled. But, BEWARE, you still have to request it!
To go further:
The points set out above are very brief, even though they remain very practical and applicable in practice.
But, to be even more effective, you should know that:
If your company's turnover does not exceed the thresholds of the simplified tax regime (Article L52 of the LPF), the tax authorities are limited in time as regards their audit.
In that case, their tax audit cannot exceed a period set at three months, and not a single day more, failing which, once again, the annulment of the adjustments will follow.
Furthermore, as you will have understood, the tax authorities must ask you for explanations on the contentious points, and ask you for supporting documents when they have questions about certain points, for example, typically, the nature of certain expenses.
They may borrow documents from you, but they must not forget to return them to you.
Here again, failure to return documents would constitute grounds for annulment of the adjustments and therefore an excellent means of defending yourself in the event of a tax audit!
Moreover, even if the tax authorities have scrupulously complied with the tax procedure, you still have avenues of appeal, means of defending yourself against the audit imposed on you:
You can refer the matter to the departmental commission (commission départementale). This commission is made up of representatives of the tax authorities, a judge, and also representatives of taxpayers. Its opinions (which are not binding on the tax authorities) are generally balanced.
In addition, you can also refer the matter to the hierarchical superior of your tax inspector.
This will give you a second chance if some of your arguments did not hit the mark with your tax inspector. Many remedies exist to defend yourself; discuss them with your tax lawyer.
Ultimately, you need to understand several things:
– you have many avenues of appeal to defend yourself in the event of a tax audit
– in the event of a tax audit, the tax authorities must scrupulously comply with the tax procedure
– there are other avenues of appeal before the administrative courts, which are often very effective. This will be the subject of another article
