The right of disclosure (droit de communication): explanations
When carrying out a tax audit, the tax authorities need documents and data on which to base their work. The Tax Procedures Handbook (Livre des procédures fiscales, LPF) grants them a right of disclosure (droit de communication) enabling them to collect, on a one-off basis only, all useful information and documents concerning the taxpayer in question.
Who is subject to the right of disclosure
Requests for information may be sent directly to the taxpayer. However, the purpose of the tax audit is to examine the sincerity and accuracy of the returns. It will therefore be relevant to compare them with other data.
Third parties are therefore more likely to be approached under this right of disclosure regarding the personal and financial situation of the person concerned. In France, some twenty categories of professionals may be required to provide the information requested. Only healthcare professionals may object to such a request.
The bodies to which the tax authorities regularly turn include, for example:
• Banks and financial institutions
• Public authorities
• Social security, through the health insurance funds
• Bailiffs and notaries
• The courts
• Farmers and traders
• Craftsmen
• Non-trading companies (sociétés civiles)
• Online gaming regulatory authorities, foreign authorities, the French Financial Markets Authority (AMF)...
The right of disclosure is not limited to the person being audited: it may also, subject to conditions, relate to unidentified persons (non-nominative requests, Article L81, paragraph 2 of the LPF), in which case the third parties approached are required to provide the information requested.
Documents that may be requested under the right of disclosure
When a commercial enterprise is contacted by the tax authorities, it is required to provide all the necessary accounting documents. These will make it possible to check whether the returns filed reflect reality. Turnover, in particular, will be of interest in the context of a tax audit.
Under the Tax Procedures Handbook, financial institutions are required to provide all documents useful for the tax audit. When the right of disclosure is exercised, account statements showing banking transactions may be disclosed. Notices of fund transfers will also be useful.
For a business, the accounting entries are very important, since they make it possible to know precisely the purchases and sales over a given period.
How is the right of disclosure exercised?
No specific formality is required of the tax authorities in order to use it. Upon simple request, the documents needed to examine the file must be handed over to the tax departments.
Tax officers may consult the requested documents on site or request that they be sent by post or electronically. The obligation to disclose documents also authorises them to make copies of the documents so that they can study them later. However, they may not examine them in depth or annotate them. The right of disclosure is primarily aimed at collecting information.
Retention of documents
For the tax authorities, exercising the right of disclosure means collecting a large number of documents and data. As they fall within the scope of a tax audit, they must be kept for a certain period, and no longer, which depends on the case. Otherwise, the reassessments could be cancelled.
In the context of a tax audit, the taxpayer may require the tax authorities to disclose to them all the documents and information they have gathered about them. Failure by the tax authorities to disclose certain items to the taxpayer may lead to the cancellation of the reassessments.
Right of disclosure and professional secrecy
The Council of State (Conseil d'État) has stated that professional secrecy cannot be breached by this right of disclosure of the tax authorities. However, a few exceptions are made to allow the tax audit to be conducted in the best possible way.
The Tax Procedures Handbook notably states that bodies such as banks and insurance companies cannot invoke professional secrecy. They must therefore comply and make available all documents useful for examining the file.
Certain non-commercial professions are also regulated, and the right of disclosure may only be exercised under strict conditions. Moreover, all medical information remains protected by professional secrecy.
On the other hand, social security bodies cannot refuse to disclose any information concerning the taxpayer.
Penalties for failure to comply with the right of disclosure
Refusing a request from the tax authorities exercising this right of disclosure may lead to penalties. The third party contacted is liable to fines, in accordance with the Tax Code.
The destruction of documents or failure to keep accounting books that can be consulted at any time may also lead to the same penalty.
As regards investigations concerning fund transfers, any banking or financial institution that refuses to provide the corresponding information will be subject to specific penalties. The law indeed provides for a fine proportional to the sums involved in the fund transfer.
Social security bodies and judicial authorities are required to spontaneously provide all information that may be useful for the tax audit.
No mandatory notification
The tax authorities are not obliged to inform the taxpayer when they exercise their right of disclosure. However, if they wish to use this information in the context of the tax audit, they must specify to the taxpayer its exact nature, its origin and its content.
It is therefore common for taxpayers to be informed, after a more or less lengthy period, that this right of disclosure has been exercised with a large number of bodies.
Our tax law firm can assist you.
