Undergoing a tax audit in France can be an extremely stressful experience, given the strict tax and accountancy laws that leave little room for errors and carry hefty penalties.
Reasons for a tax audit can vary and may include:
- Random selection
- Late submission of tax returns
- Inconsistencies between bank transactions and statements
- Inconsistencies in accounts or declarations compared to those of customers or suppliers in Europe
- Suspicion related to commercial relationships with monitored companies
- Cross-checks triggered by the verification of another company
- Tips or reports of tax fraud from individuals within or outside the company
The tax audit process begins with a registered letter sent to the company’s head office, specifying the period to be audited and the concerned tax and providing the first intervention date. Typically, there is a 15-day notice period before the initial meeting. However, in cases of suspected fraud, the customs service may conduct an immediate intervention without prior notice, having the right to enter your premises and request or seize documents. In such situations, the audit transforms into a police investigation.
The time to prepare paperwork between the initial contact and the first meeting is generally around 15 days. During the initial meeting, the company’s activity, operative specificities, and organizational chart are discussed. Although some auditors may request document review during the first meeting, it is not something usual.
The required documents typically include legal documents, balance sheets, account books, VAT justifications, contracts, invoices, purchase orders, customs clearance justifications for exports, and bank statements.
Having the assistance of a professional specialized lawyer is highly recommended during a tax audit. Tax lawyers are experienced in dealing with administration auditors, understand their limitations, and can provide accurate responses to legal questions. Tax lawyers also help manage the flow of information and documents, ensuring that only relevant items are provided. Their presence can help build trust and create a more constructive dialogue between the company and the auditor.
The audit financial years scope generally covers the current one and the three previous. For certain projects spanning multiple years, the audit may extend beyond the usual three-year timeframe. The audit length is typically three months, but it may be longer for companies with an annual turnover exceeding €234,000.
During the audit, a dedicated room must generally be made available for the auditor to review documents. Tax lawyers often engage in discussions with the auditor during interventions and provide explanations or notes for subsequent meetings. Maintaining a friendly and respectful relationship with the auditor is crucial.
To alleviate stress during the audit, hiring a lawyer is highly advised. It is also preferable for the client not being present during the major part of the audit, except for mandatory initial and final appointments. Mistakes to avoid during the audit include providing excessive or incomplete information, voluntarily submitting unnecessary documents, and making incorrect statements due to a lack of understanding of complex tax laws.
Tax administration in France applies the same standards to expat entrepreneurs as it does to local businesses. Accounting, tax, social, and legal frameworks in France are legally binding for all businesses, regardless of cultural differences or the entrepreneur’s country of origin.
Outcomes of the audit can vary but in the event the audit reveals no inconsistencies, no adjustments need to be made. However, if issues are found, adjustments to VAT, corporate tax, and other taxes may be required. These adjustments, along with penalty fines, must be paid by the company. Penalties may include interest on delayed payments, a 10% penalty if good faith is acknowledged, or penalties of 40%, 80%, or even 100% if there is evidence of bad faith or fraud. Disputing penalties can involve appealing to the audit commission or administrative court, but success in overturning penalties is not so rare.
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MFL registered lawyers remain at your disposal should you have any queries or needing assitance regarding a tax audit. MFL will provide you with the best lawyers to handle your situation and secure your interest.