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The conduct of a tax audit

In the vast majority of cases, the tax audit including one taxpayer may be subject to the so-called contradictory rectification procedure which is characterized by a dialogue between the tax administration and the taxpayer and which is accompanied by various guarantees provided to the latter.


One of the exceptions to this principle concerns the case of the taxpayer who is subject to taxation or an automatic assessment of the tax bases by which the verifying service is authorized to unilaterally determine the bases tax to be retained (no possibility of dialoguing with the tax administration until the taxes are established).

This may in particular be the case of a taxpayer who has not filed the entire declaration of their income within the legal deadline.

This article will deal exclusively with the case of the contradictory rectification procedure.


Notification of a proposed rectification

If the tax administration intends to carry out a tax rectification (formerly called tax adjustment) via a contradictory rectification procedure, it must begin with sending of a proposal for rectification under penalty of procedural irregularity.

Under the terms of the article L 57, al. 1 of the Books of Tax Procedures (hereinafter “LPF”), the rectification proposals must be motivated in such a way as to put the taxpayer in a position to be able to formulate his observations or to make known his acceptance.

The information that must be included in the document is precisely defined by law and the slightest omission can result in the entire procedure being canceled.

This proposed rectification has three effects:

- It interrupts the course of the limitation period applicable to the right to resume administration.

Thus, in matters of income tax for example, the administration has in principle until December 31 of the third year following that for which the taxation is due to establish additional taxation. However, the notification of a proposed rectification interrupts this period so that the administration has until December 31 of the third year following that of the notification of the proposed rectification to establish additional taxation.

- It opens a response period of thirty days which is binding, in principle, on both the taxpayer and the administration. The taxpayer may, however, request that this deadline be extended by thirty days provided that this request is made before the end of the initial thirty-day period. This period begins to run from the actual withdrawal of the envelope when it has been withdrawn or from the date of presentation (notice of proceedings) otherwise.

- It sets the tax bases. This implies that the tax administration will not be able to establish a tax with a base higher than that mentioned in the rectification proposal.

Taxpayer response

Once the rectification proposal has been received, the taxpayer can either accept the proposed rectifications or present observations, it being specified that the administration must wait for the expiration of the legal deadline set for the taxpayer to respond to the rectification proposal before proceeding with the establishment of the tax.

It is very important to be able to gather before the end of the response period all the elements allowing us to usefully challenge the notified increases.

Indeed, it happens that the taxpayer writes to the administration for the first time, telling them that they will come back to them with new information later. The problem is that the administration is not required to respond to additional observations presented by the taxpayer after the expiration of the legal response deadline (possibly extended by thirty days), even though the interested party has announced the production of these observations in its initial response, formulated within the allotted time limit.

Response from the administration

Except in the event of an accounting audit to which certain small and medium-sized businesses are subject, the law does not impose any deadline on the tax administration to respond to the taxpayer's observations.

If the administration rejects the arguments put forward by the taxpayer, it must do so by precisely motivating the reasons which justify the rejection of the observations presented, whether this rejection is total or partial under penalty of procedural irregularity.

The taxpayer then has the option, in certain cases, of entering certain commissions such as the direct taxes and turnover taxes commission. The taxpayer has thirty days from receipt of the response to his observations by the administration to contact this body.

This deadline is all the more important to know as the Council of State ruled that the tax administration was not required to inform the taxpayer.

Hierarchical recourse

In the event of continued disagreement with the administration, the taxpayer has the possibility of contacting the divisional inspector and possibly then the contact person specially designated by the director of tax services.

Before the entry into force of a law of August 10, 2018, this possibility only existed in the event of an examination of personal tax situation (ESFP) or verification accounting of a company.

The tax administration defines the ESFP as the operation which consists of “controlling the consistency between, on the one hand, the income declared for tax on income and, on the other hand, the cash flow situation, the patrimonial situation and the elements of the lifestyle available to the taxpayer and the other members of his tax household”.

Thus, if the tax administration intends, for example, to call into question “only” the exemption of a real estate capital gain, it is not obliged to resort to a ESFP. The taxpayer therefore does not have the right to make a hierarchical appeal.

Similarly, the accounting audit is defined as a set of operations aimed at examining the accounting of a company on site and comparing it with certain factual data or material in order to control the declarations subscribed.

For example, an accounting audit cannot be initiated against a taxpayer with regard to their salaries and wages. In fact, the taxpayer does not have to keep accounts regarding this category of income.

Law 2018-727, however, expanded the possibility of such an appeal (with different modalities) also during a documentary inspection. This type of control is defined as all office work during which the service critically examines declarations using the information and documents contained in the various files it holds, and, where applicable , establishes the justified increases or reductions.

Recovery of taxes

If, at the end of these various stages, the administration still rejects the arguments put forward by the taxpayer, it proceeds to collect the taxes.

With regard to income tax, the taxpayer is generally informed of this collection by sending a tax notice.

With regard to other taxes (in particular corporate tax, turnover taxes and registration fees), the taxpayer is informed by sending of a recovery notice. The tax administration can, however, use this procedure also with regard to income tax.

Complaint

The taxpayer then has the possibility of making a complaint to, in the majority of cases, the services of the general directorate of public finances.< /p>

Under the terms of article R 196-1 of the LPF, the time limit in principle given for submitting a complaint to the administration expires on December 31 of the second year following, as the case may be, that :

- the recovery of the role (income tax, social security contributions on property income, etc.);

- notification of a recovery notice (VAT, corporate tax, registration fees, payroll tax, apprenticeship tax, etc.).

But be careful: a taxpayer who contests the validity of his or her tax liability is not exempt from paying it in full (duties and penalties) within the legal deadline.< /p>

However, he may request as part of his claim to suspend payment of the sums in dispute, clearly indicating the amount or the basis of the relief to which he is claiming.

This suspension will be applicable until the final decision, that is to say until the judgment of the court ruling on the complaint or, if the court is not seized, until the expiry of the period available to the taxpayer to seize it (generally two months from receipt of the decision rejecting the complaint).

But he must then provide guarantees capable of ensuring recovery (bank guarantee, pledge of business assets, mortgage allocation, etc.) unless the amount of the contested rights ( excluding penalties) is less than €4,500.

When the taxpayer does not provide guarantees or presents guarantees deemed insufficient by the public accountant, the latter may take precautionary measures (seizures of movable property, legal securities, etc. .) until a final decision has been taken on the complaint by the competent administration or court.

Recourse to the courts

In the event of rejection of the complaint, or a lack of response from the administration within six months, the taxpayer has the possibility of going to court.< /p>

If the disputed taxes relate to direct taxes or turnover taxes (income tax, corporate tax, VAT, etc.), the competent court is the administrative court.

If they relate to registration and stamp duties, indirect contributions or the IFI, the competent court is the judicial court.

The taxpayer has two months from the day of notification of the administration's decision to refer the matter to the administrative court or the judicial court.

In the event that the administration has not made a decision within six months of the complaint, the complainant has the possibility from this date of bringing the dispute before the administrative court or the judicial court without any deadline constraints.

Appeal against the decision of the administrative court or the judicial court

If the decision of the judicial court or administrative court does not suit the taxpayer, he may, if he wishes, file an appeal within one month from notification of the judgment of the judicial court and two months with regard to that rendered by the administrative court.

With regard to the judgment rendered by the judicial court, the appeal is filed with the territorially competent court of appeal.

With regard to the judgment rendered by the administrative court, the appeal is filed with the territorially competent administrative court of appeal.

The appeal is however not possible in certain areas, such as local taxes (apart from the Territorial Economic Contribution). Judgments rendered in these matters are therefore only subject to appeal to the Court of Cassation.

In principle, appeals against the decision of the judicial court and the administrative court suspend the execution of a judgment. However, this is not the case in tax matters. This implies in particular that the suspension of payment from which the taxpayer may have benefited expires from notification of the first instance decision if it is unfavorable to him.​

Please note that this information, up to date as of February 12, 2021, has been voluntarily simplified and summarized for educational purposes and does not constitute legal advice.

For any consultation request, particularly remotely, you can contact Me Nicolas Rozenbaum directly using the contact form by clicking here.

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