A tax audit rarely happens by chance.
In most cases, it is the logical follow-up to a desk audit (contrôle sur pièces: cross-checks of information carried out by tax officials in their offices, without the taxpayer's knowledge) that has revealed major anomalies.
In other cases, it is a tax audit triggered at your personal level after your company has been audited.
You may also be part of a larger-scale audit, decided by the higher levels of the tax authorities (administration fiscale) (for example, audits targeting all SMEs in the construction and public works sector exceeding a certain turnover, or all banks with regard to VAT on their financial activities, or all digital marketing companies with regard to their transactions with their foreign suppliers...). In these cases, the tax authorities have identified certain practices that they believe may give rise to tax reassessments, and they launch mass audits.
Finally, it may also often be a matter of information transmitted by your bank, whether French or foreign. Indeed, a significant proportion of the information passed on to the tax authorities is transmitted by banks, without the client being notified. This may concern cash deposits into your account, or the receipt of one or more large transfers (especially if they come from abroad). Increasingly, it will also concern information transmitted by your foreign bank to the French tax authorities. There are now agreements with more than a hundred States providing for the automatic transmission of bank data to the French tax authorities. In my tax law firm, I increasingly see such transmissions of information by foreign banks (if you have received a letter to this effect from the tax authorities, act quickly to prevent the situation from getting worse!).
Tax audit: what are you risking?
Mainly, tax reassessments (referred to in our jargon, euphemistically, as tax adjustments (rectifications fiscales)). The taxes considered due are of course charged back to you, but with surcharges ranging from 10% to 100% and late-payment interest at the rate of 2.40% per year.
In addition, in certain cases, and increasingly often, criminal proceedings whose consequences may include fines, a criminal record, a suspended prison sentence and, much more rarely, an actual prison sentence (in the most extreme cases).
However, by not letting things escalate, that is to say, in practical terms, by tackling matters head-on as early as possible, in a rigorous and expert manner, the situation will often be very different and clearly less unfavourable to the taxpayer.
Indeed, as everywhere, if you let the other party (in this case, the tax authorities) draw up "the bill" on its own and with complete freedom, the reassessments will often be very heavy.
Tax audit: how can you defend yourself?
Taxpayers often feel, at first, helpless when faced with the tax authorities, especially in the case of smaller companies or individuals.
However, in the vast majority of cases, solutions exist.
The rights of the tax authorities are extensive.
But the legislation provides for a balance of rights between the tax authorities and the audited taxpayer.
The rights of the audited taxpayer are therefore also extensive.
The idea is not to enter into a technical demonstration of the list of the audited taxpayer's rights. But be aware that there are many of them.
To give you an idea, the tax code runs to 3,638 pages. And that is only the visible part of tax law. In addition to this code, there are European texts, international tax treaties, case law, texts written by the tax authorities…
Within this gigantic body of applicable texts, there are often provisions favourable to the taxpayer, in his or her specific situation, which your tax lawyer will be responsible for finding.
Tax audit: the firm's services
Representing you before the tax authorities
That is to say, "speaking to them in your place" on your behalf (e-mails, telephone conversations, letters…). You are immediately relieved of the psychological pressure of the audit.
Using all existing procedural means and all rules of law to limit, or in some cases eliminate, the reassessments
Explaining things to you clearly as they develop
Being constantly available throughout the procedure for your questions and comments
Tax audit: bad practices
Tax audit: good practices
Suppliers' declarations compared with those of customers, individual interviews to rule out fraud and understand your situation in detail, review of bank accounts, lifestyle, invoices… Whether for an individual or a company, a genuine investigation will be carried out, remotely (desk audit) or "in the presence" of the taxpayer (ESFP, examination of accounts (examen de comptabilité), accounting audit (vérification de comptabilité)).
Unusual or suspicious declarations are reviewed, as are reports, which most often come from banking institutions.
The information does not add up, and inconsistencies and delays are flagged by the software? The documents submitted have aroused the suspicions of the tax departments?
This is often the starting point of an audit…
To defend yourself, choose one of the many solutions available to you:
- scrutinise the procedure to detect any irregularity
- find effective legal arguments to challenge the reassessments on the merits
- Negotiate with the tax authorities
A meeting with an auditor
Your behaviour must remain professional. Set the auditor up in a quiet office (to avoid disturbing your staff and, incidentally, to prevent overly talkative employees around the coffee machine from tipping the auditor off about other matters).
Finally, provide the auditor with documents that have been printed and filed in advance: he or she will have a better view of your situation and will therefore be more inclined to consider your situation "clean". One thing must be clearly understood: when something does not seem clear to the auditor, the result is a reassessment. It is not the auditor's job to untangle your documents in every direction to understand your situation; it is up to you to present things clearly so that the auditor can conclude that no reassessment should be made.
Taxpayers often make this mistake: drowning the auditor in tons of documents in every direction, thinking that he or she will do everything possible to clear things up. However, this is not the case. Lack of clarity = reassessment.
Being represented by an experienced professional will enable you to find the right balance between legal arguments and amicable negotiation with the tax authorities.
It is through a combination of the two that the best results are generally achieved.
Your counsel will ensure that your rights are respected: defending your interests during an in-depth examination of your tax situation (examen contradictoire de situation fiscale) or proving that a reassessment has no legal basis.
Remember that the powers of the tax authorities are extensive, but that the law provides for a balance between the powers of the tax authorities and those of the audited taxpayer.
Many remedies exist. Tax procedure is extremely complex and precise.
It applies strictly to the actions of the auditor.
In addition, there are thousands of tax texts.
These texts derive from statutes, decrees, international treaties, case law and administrative doctrine (official tax bulletins…).
In most situations, there are texts that can be used to defend you effectively.
This is why the assistance of an experienced professional seems advisable, especially if the reassessments are significant. Our tax law firm can assist you.
