When the tax authorities wish to carry out a desk tax audit (contrôle fiscal sur pièces) of a taxpayer's income, various tools are available to them. The request for clarification or justification (demande d’éclaircissements ou de justifications) is one of them. It makes it possible to shed light on certain questions or inconsistencies that remain in the file.
A specific notice is then sent to the taxpayer:
• The request for clarification: comments or additional information are requested on the returns filed
• The request for justification: evidence is required.
In both cases, it is recommended to respond honestly and completely to prevent the procedure from becoming harsher, ideally with the help of an experienced adviser, such as our tax law firm.
The Tax Procedure Code (Livre des procédures fiscales, LPF) states that the request for clarification and justification may relate to taxes, levies, duties and charges. The returns themselves may be targeted, but also all the information provided to obtain tax deductions and refunds (tax reductions, tax credits).
A distinction must be made with requests for information (demandes de renseignements), which may be sent by ordinary letter and are not legally binding. They simply aim to supplement the returns with simple details such as the address or the number of dependent children, in general, or to give the taxpayer a chance to spontaneously clarify his or her situation in the event of more serious irregularities.
The request for clarification and justification, on the other hand, is at a higher level, to genuinely prove that the returns filed are absolutely accurate. In this case, strictly observing the deadline is essential. These requests are legally binding. A failure to respond or an irrelevant response may lead to an automatic assessment (imposition d’office).
Clarification and justification: different requests
Although both requests may be made in the same letter, they do not call for the same responses from the taxpayer.
The request for clarification
Any item entered on a return may be the subject of this type of request. The tax authorities then expect comments and additional information about it.
It is used in particular in the following cases:
• Contradictions have been identified between several returns
• Discrepancies between the returns and other information known to the tax authorities
It is not necessary to prove that the actual income is higher than the income declared, but simply that there are contradictions and discrepancies.
The request for justification
This request requires the taxpayer to be able to add some evidence to the file in order to supplement his or her return. Documents are requested for the file, such as those substantiating:
• Family dependants
• Deductible expenses and tax credits
• Assets or income originating from abroad
• Documents making it possible to determine property income, including in particular invoices for expenses
• Any document proving that the taxpayer has more income than declared
For the request for justification, there must be indications that may point to concealment of income.
Among the indications considered sufficient:
• A discrepancy between income and expenditure
• The comparison between the credits on his or her various bank accounts and the income declared reveals certain inconsistencies. Where they exceed twice the income declared, the tax authorities will consider that they are faced with a concealment of income, a characterisation that it will be important to fight immediately using very specific rules of law that your tax lawyer will know how to use to your advantage.
It is important to know that this "double" rule is the practice. If the ratio between the funds in the bank accounts and the income declared is only 1.96, the tax authorities will generally not seek to find out more. Failure to comply with this condition may in some cases result in a procedural defect.
This procedure is important for both the tax officer and the taxpayer. For the latter, caution is called for, because this procedure may precede a more thorough tax audit. At every stage, the taxpayer must try to provide the information that will make it possible to close the file.
How the procedure unfolds
The procedure is similar for both the request for clarification and the request for justification. This request is always sent by letter with acknowledgement of receipt. The notice specifies precisely which items this official request is based on.
This notice states precisely the deadline for responding as well as the penalties provided for in the event of no response during that period. This response period is at least two months from the date of receipt. A request for an extension may be sent to the tax authorities if the initial period was insufficient to gather all the supporting documents requested.
The taxpayer's response
In this tax procedure, the taxpayer is obliged to respond. If he or she refuses to respond, provides only an oral response or if the response arrives outside the prescribed period, automatic taxation (taxation d’office) may be decided. An insufficient or evasive response will also be regarded as a refusal to respond.
When a response is given within the prescribed period:
• When the response is convincing, the tax authorities may terminate the procedure.
• When the response is incomplete, a formal notice (mise en demeure) to provide the missing information will be sent. It will allow 30 additional days to complete the response. However, at the end of this additional period, automatic taxation will be applied where the response remains incomplete, if the taxpayer does not respond or if he or she responds after these 30 days.
As regards the response, it is important to know that it must be reasoned and based on precise information. In all cases, being vague and imprecise must be avoided. The production of evidence is essential for the taxpayer's statements to be regarded as acceptable.
The importance of a professional adviser
Throughout this procedure, the taxpayer may be assisted by a third party acting as adviser, who may be a tax lawyer or any other person. His or her role will be to help draft a complete response providing sufficient evidence for the procedure to be stopped.
This adviser will also stress the importance of complying with the deadlines and the formal requirements for responses so that this procedure ends as quickly as possible. It is in the taxpayer's interest to adopt this approach, as it maximises the chances of avoiding a large-scale tax reassessment.
Our tax law firm can assist you.
