How should you respond to a request for information from the tax authorities?

A request for information from the tax authorities is never insignificant. It does not necessarily mean that a tax audit will follow, but it may be the first step in a more thorough examination of your situation.

To ensure that tax is correctly assessed, the tax authorities have several procedures at their disposal enabling them to collect information, cross-check data and identify possible omissions, understatements or irregularities in returns.

These procedures do not, however, share the same purpose, the same scope or the same consequences for the taxpayer.

A simple request for information may thus remain optional, whereas a request for justification that is not properly dealt with may lead to an ex officio assessment.

Understanding the exact nature of the letter received is therefore essential before responding to it.

1. Requests for tax information: how to distinguish between the tax authorities' procedures?

The request for information: a procedure that is not legally binding

As part of its right of review under Article L. 10 of the French Tax Procedures Code (LPF), the tax authorities may ask a taxpayer to clarify matters they wish to have explained.

The request may be made orally or in writing, in particular on form no. 754. It may cover any point enabling the tax authorities better to understand the taxpayer's tax situation.

This procedure has one important feature: it is not binding.

The taxpayer may therefore choose not to respond without incurring any specific penalty. Nor does the request interrupt the limitation period.

This does not mean, however, that it is always wise to ignore it.

A failure to respond, an imprecise response or the disclosure of poorly controlled information may lead the tax authorities to deepen their investigation, to use a more coercive procedure or even to launch a full tax audit.

The challenge therefore lies in deciding what it is useful to disclose, in how much detail and with which supporting documents.

Requests for clarification or justification: a carefully prepared response is essential

The position is different where the tax authorities send a request for clarification or justification.

This procedure is binding: a failure to respond, or a response deemed inadequate, may allow the tax authorities to initiate an ex officio assessment.

Its scope is precisely defined by law. It may be used in particular in relation to income tax, turnover taxes, the real estate wealth tax and inheritance tax.

The distinction between a simple request for information and a request for justification is therefore decisive.

A response prepared in haste may lead the taxpayer to disclose more than is legally required or, conversely, to respond inadequately to a request that called for precise justification.

2. Right of disclosure: the tax authorities may obtain information from third parties

Who may be approached by the tax authorities?

The tax authorities do not collect information solely from the taxpayer.

Articles L. 81 et seq. of the LPF allow them to exercise a right of disclosure against many individuals and legal entities that are required to retain and disclose certain information.

This right may be exercised in particular against businesses, banks, certain non-commercial professions, the State and local authorities.

The tax authorities may thus obtain bank statements from a bank, commercial information from a supplier or motorway toll records from a motorway operator.

The right of disclosure nevertheless has its limits. In the case of businesses, for example, investigations of this kind must remain occasional and be limited to a passive reading of the accounting entries. A genuine critical examination of the accounts, on the other hand, could amount to the beginning of an accounting audit, which is governed by a separate procedural framework.

Refusing to comply with the right of disclosure may result in a fine of 10,000 euros. It is therefore unwise to count on a lack of cooperation from those approached by the tax authorities.

The taxpayer must be informed where the tax authorities use information obtained from third parties

The tax authorities' power to collect information is balanced by an essential safeguard for the taxpayer.

Where the tax authorities intend to use information or documents obtained from third parties to establish an assessment, Article L. 76 B of the LPF requires them to inform the taxpayer of their content and origin.

The taxpayer may also request, before the tax is issued for collection, a copy of the documents concerned.

This safeguard is fundamental to ensuring the adversarial nature of the procedure.

It enables the taxpayer to know what evidence is actually being used against them and, where appropriate, to challenge its scope, reliability or interpretation.

3. Investigative procedures: anticipating before investigations become more intrusive

As the risk of fraud increases, so do the powers of the tax authorities

Alongside the conventional information procedures, the legislature has provided for several more intrusive investigative measures where the risk of fraud appears greater.

The tax authorities may in particular exercise a right of inquiry in VAT matters in order to detect breaches of invoicing obligations.

They may also interview third parties in connection with combating international tax fraud and evasion, notably on questions relating to tax residence or the territorial scope of tax. The records of such interviews may then be used in an audit.

In the most sensitive situations, the tax authorities may also resort to the procedure for flagrant tax offences, to a tax search or to a judicial tax investigation.

The latter may, in certain cases of serious fraud where there is a risk of evidence being lost, lead to the use of judicial powers such as interviews, telephone interception or police custody.

Responding to the tax authorities requires a thorough grasp of the framework of the request

Not every request from the tax authorities should therefore be dealt with in the same way.

Before any response, it is necessary to identify precisely the procedure being used, whether or not it is binding, the applicable time limits, the documents actually requested and the consequences of an incomplete or excessively broad response.

The involvement of a tax lawyer makes it possible to analyse the scope of the request, determine which information should be disclosed, identify the safeguards available to the taxpayer and anticipate any subsequent audit.

The firm supports private individuals and businesses from the very first requests for information from the tax authorities, in order to secure the responses given, preserve the taxpayer's rights and ensure that an apparently straightforward step does not needlessly weaken their tax position.

The aim is to remain in control of exchanges with the tax authorities from the earliest stages of any investigation and, where necessary, to prepare the defence strategy before a full audit procedure is initiated.