In many people's minds, a tax audit is synonymous with stress and injustice: denunciations, a meticulous inspector who scrupulously pores over your every expense and item of income, endless examinations carried out more and more frequently for no valid reason. Yet, in reality, this administrative procedure is fairly rare and very strictly regulated.
Indeed, according to the Solidaires Finances Publiques union, the number of tax audits has been falling in recent years.
Individuals in particular could be subject to a desk audit (contrôle sur pièces) every 44 years on average in 2008, and only every 70 years in 2016!
Although the probability of being audited by the tax authorities remains minimal, questions nevertheless remain.
Which individuals are likely to be subject to an in-depth examination of personal tax situation (examen de situation fiscale personnelle, ESFP)?
Do DGFIP officers systematically take action following denunciations?
Do the tax authorities have the right to audit your income without limit, or is there a limitation period?
Beyond the many stereotypes and myths surrounding the tax audit in the collective imagination, discover now the rules governing the initiation and conduct of an ESFP in our complete guide written by your tax lawyer.
Few audits
Do you think the tax authorities constantly harass taxpayers by multiplying audits? Yet, in concrete terms, each year fewer than 900,000 individuals are audited by the tax authorities out of approximately 17 million taxable households.
Moreover, in most cases, these examinations are merely desk audits carried out by the auditor from his or her office, which consist in:
- Analysing the taxpayer's returns
- Cross-checking with the information held by the tax authorities
- Ensuring the consistency of the file as a whole
If no anomaly is detected, the taxpayer is not even aware of the examination he or she has been subject to.
On the other hand, if the inspector considers it necessary, he or she may ask the taxpayer for additional information or even notify a reassessment.
Ultimately, the in-depth audit, in other words the ESFP or the audit of accounts (vérification de comptabilité), is only carried out exceptionally.
An examination at the DGFIP's premises
Do you already picture yourself confronted with an inspector who has come to snoop into every corner of your home? Contrary to popular belief, tax audits do not take place at the taxpayer's home in the case of individuals, but rather at the tax authorities' premises.
"High-stakes" files in the authorities' sights
Do you think that the authorities relentlessly target middle-class households and never audit the most affluent? Another misconception that needs to be challenged! Indeed, if it can be said that not all taxpayers are equal when it comes to tax audits, it is precisely because the wealthiest taxpayers receive very special attention. Thus, these so-called high-stakes files generally undergo a desk audit every 3 years.
Anonymous denunciation: a very infrequent trigger for an audit
You have just received a tax audit notice and you immediately think you are the victim of an anonymous denunciation? In fact, until now, the tax authorities refused to take into account any anonymous denunciation. Only reports made non-anonymously were likely to attract their attention, and only in the case of serious findings that had been described precisely and repeated in several letters over time. Indeed, it is only since 1 January 2017 that the status of tax informant (aviseur fiscal) has been officially recognised. Moreover, this procedure is limited to very specific fraudulent practices, which must necessarily involve a foreign element (i.e. an international one; the scope has since been extended, in particular to VAT breaches):
- Breaches of the rules concerning domicile in France,
- International tax evasion,
- Failure to declare bank accounts held abroad,
Etc…
Thus, in most cases, the selection of tax files to be audited is made solely on the basis of cross-checks through the matching of computerised files and not following an anonymous denunciation, which makes the tax audit an essentially technical procedure, in which the tax lawyer will often play a leading role.
The sources used to detect fraudulent behaviour may be:
- Bank accounts,
- Life insurance and capitalisation contracts,
- The national database of assets (base nationale des données patrimoniales),
- Files from French and foreign administrations,
Etc...
Disclosure of information to the tax authorities: an obligation
The myth of denunciation to the tax authorities is sometimes reinforced when taxpayers realise that tax officers have had access to information that, for example, only their bank knows. It should be borne in mind, however, that financial institutions (banks, the Caisse des dépôts et consignations, companies, social security bodies, etc.) are obliged to disclose certain information relating to transfers of funds abroad when tax officers ask them to do so. If they refuse, penalties may be imposed on them.
Limitation periods: a limit on tax audits
Did you think the tax authorities could exercise their right of audit indefinitely? Far from it. Indeed, the tax authorities may exercise this right only within certain time limits, the length of which depends on the nature of the tax being audited:
- Income tax: limitation period in principle of 3 years, which may be extended to 6 years in certain cases or to 10 years in the event of failure to declare accounts or contracts taken out outside France or in the case of illicit or undeclared activity.
- Local taxes: limitation period of 1 year, which may be extended to 3 years where the adjustments relate to the taxpayer's income tax (errors in the reference tax income, the family quotient, or attached dependants)
- Real estate wealth tax (impôt sur la fortune immobilière): limitation period of 3 years or 6 years depending on the case, which may be extended to 10 years in the event of failure to declare bank accounts opened abroad
The procedural rules of the tax audit: the assurance of a fair examination
Do you think you are defenceless in the face of a tax audit? Yet this examination is subject to numerous rules established in favour of the taxpayer, ensuring a balanced tax audit, provided that the taxpayer is fully aware of his or her rights and possible remedies, hence the advantage of being assisted by a tax lawyer. Failure by the tax authorities to comply with the procedure may indeed be sanctioned by the annulment of the tax reassessment notified to the taxpayer. The procedural defects leading to such annulment include in particular:
- The absence of a notice of audit of accounts,
- Failure to send the Taxpayer's Charter (charte du contribuable),
- Insufficient time to call on an adviser, or no information about the possibility of being assisted,
- Failure to comply with the conditions for removing accounting documents,
Etc…
Our tax law firm can assist you.
