Can you refuse to cooperate with a tax audit?

Refusing to cooperate with the tax authorities can have far more serious consequences than a simple reassessment. Where a taxpayer deliberately prevents tax officials from carrying out their duties, they are exposed in particular to an ex officio assessment of their tax bases, a 100% surcharge on the additional tax and, in certain circumstances, criminal prosecution.

A tax audit may give rise to disagreements, in particular where the tax authorities request accounting documents, wish to access certain computer data or dispute the explanations provided by the taxpayer.

The line between the legitimate exercise of one’s rights and obstruction of a tax audit must nevertheless be precisely identified. An explicit refusal is not always required: certain passive conduct may also prevent the inspectors from carrying out their duties.

Article L. 74 of the French Tax Procedures Code (Livre des procédures fiscales, LPF) and Article 1746 of the French General Tax Code (Code général des impôts, CGI) provide for distinct consequences, respectively tax and criminal, where the conditions for obstruction are met.

The characterisation adopted nevertheless depends on the circumstances of the audit, the taxpayer’s obligations and the facts actually established by the tax authorities.

1. Obstructing a tax audit: what conduct constitutes an offence?

What is obstruction of tax officials?

Obstruction of tax officials (opposition à fonction) refers to conduct that prevents authorised tax officials from lawfully carrying out their duties.

Article 1746, 1 of the CGI does not confine this offence to physical obstruction. It may also result from an explicit refusal or a deliberately passive attitude.

Thus, preventing inspectors from accessing business premises, refusing to produce accounts that are legally required, or deliberately handing over unusable documents may amount to obstruction.

The same applies where a taxpayer repeatedly fails to attend without justification or deliberately ignores requests from the tax authorities, to the point of making the audit operations impossible.

Where accounts are computerised, certain obstacles to accessing files or carrying out the necessary processing may also justify the use of the ex officio assessment procedure.

By contrast, an isolated practical difficulty, a justified request for postponement or a disagreement over the extent of the inspector’s powers do not, in themselves, constitute obstruction.

The criminal characterisation requires it to be established in particular that the conduct complained of deliberately prevented the officials from carrying out a task they were legally authorised to perform.

Can a third party be prosecuted for obstructing a tax audit?

Obstruction may be committed by a person other than the taxpayer under audit.

A third party who deliberately prevents tax officials from carrying out their duties may thus incur personal criminal liability, irrespective of any reassessment concerning their own situation.

This may arise in particular where a person intervenes to prevent access to the premises, refuses to provide documents whose production is legally required or takes part in intimidation.

Where several persons deliberately obstruct the assessment of tax, their conduct may also fall within the collective obstruction provided for in Article 1746, 2 of the CGI.

This offence may be fully made out even in the absence of threats or violence towards the officials. By contrast, a mere peaceful gathering that does not actually hinder the inspectors’ work is not sufficient to establish it.

A distinction must therefore be drawn between a third party’s presence during the audit and their actual participation in conduct intended to prevent the investigation.

2. Obstructing a tax audit: what penalties and what tax consequences?

What criminal penalties does a taxpayer face for obstruction?

Article 1746 of the CGI distinguishes between the penalties applicable to individual obstruction and to collective obstruction.

Individual obstruction is punishable by a fine of 25,000 euros, imposed by the criminal court. For a repeat offence, an additional sentence of up to six months’ imprisonment may be imposed.

Where the obstruction is collective, those prosecuted face six months’ imprisonment and a fine of 7,500 euros, without prejudice to the individual penalties that may apply to them.

A final conviction may also have professional consequences, in particular as regards access to public contracts.

Prosecution for obstruction is governed by a regime distinct from that applicable to the general offence of tax fraud. Article 1746, 3 of the CGI expressly excludes the procedure provided for in Article L. 228 of the LPF.

The tax authorities therefore are not required first to establish the existence of tax fraud or of tax evaded for criminal proceedings to be brought for obstruction.

Can obstructing a tax audit lead to a 100% surcharge?

Irrespective of any criminal proceedings, obstruction of a tax audit may give rise to an ex officio assessment of the tax bases.

Provided for in Article L. 74 of the LPF, this procedure allows the tax authorities to determine the taxable bases from the information at their disposal where the audit cannot take place because of the taxpayer or third parties.

It may be used in particular where a taxpayer prevents an audit of the accounts or obstructs, under the conditions laid down by law, the audit of computerised accounts.

Article 1732 of the CGI then provides for a 100% surcharge on the additional tax or on the tax credits to be repaid to the State.

This surcharge may be combined with the criminal penalties for obstruction, provided that the conditions specific to each are met.

The tax authorities do not, however, have complete freedom in setting the assessments. Even when they use an ex officio assessment, they must determine the taxable bases from the available information and seek as accurate an assessment as possible.

A challenge may therefore relate not only to the existence of the obstruction, but also to the reconstruction method used and to the amount of the additional assessments.

3. Obstructing a tax audit: how can the procedure be challenged and a defence organised?

What is the role of the official report of obstruction?

Where an inspector considers that they are being prevented from carrying out their duties, they will in principle draw up an official report (procès-verbal) setting out the circumstances of the obstruction.

This document plays an important role in justifying the use of the ex officio assessment. It must make it possible to identify the facts complained of, the circumstances in which they occurred and the obstacles the tax authorities actually encountered.

Depending on the circumstances, the tax authorities may also issue a warning informing the taxpayer of the consequences of continued obstruction.

This step is not, however, a formality that is always mandatory. An ex officio assessment may be considered as soon as a first attempt at an audit has failed, particularly where the facts are sufficiently serious.

The defence therefore requires a precise examination of the conditions in which the audit took place, the requests made by the inspector and the matters recorded in the official report.

Where the taxpayer disputes that there was any obstruction, they must in particular be in a position to challenge the tax authorities’ factual observations. The official report of obstruction is in principle authoritative unless proved otherwise.

Written exchanges, evidence that accounting documents were sent, reasoned requests for postponement or evidence of any technical difficulties may then be of particular importance.

Can a tax reassessment be challenged after obstruction of an audit?

The use of an ex officio assessment does not deprive the taxpayer of every possibility of challenge.

When a proposed reassessment is sent to them, the grounds put forward by the tax authorities, the circumstances relied on to establish the obstruction and the information used to determine the taxable bases should be examined.

The rules on notifying the assessments differ, however, from those of the ordinary adversarial procedure. It should therefore not be assumed that all the safeguards of the latter apply to an ex officio assessment.

Even where the assessments have already been issued for collection, the taxpayer may, within the statutory time limits, file a formal tax claim to challenge the use of the ex officio assessment or seek a reduction of the sums claimed.

Where the ex officio assessment procedure has been validly implemented, it is in principle for the taxpayer to show that the tax bases adopted by the tax authorities are excessive.

It is therefore necessary to reconstruct the actual results of the business, gather the available accounting documents and check the consistency of the valuation methods used by the audit team.

The defence must also address the penalties applied. Calling the ex officio assessment procedure into question may have decisive consequences for the 100% surcharge provided for in Article 1732 of the CGI.

The involvement of a tax lawyer makes it possible to examine the conditions in which the obstruction was recorded, to challenge any irregularities and to prepare a defence covering the taxable bases, the penalties and any criminal proceedings.

Based in Nice, the Valenor firm assists private individuals and businesses facing tax audits, in particular where the tax authorities allege obstruction of an audit or initiate an ex officio assessment procedure accompanied by particularly heavy penalties.

Our objective is to preserve your rights, to challenge allegations of obstruction where they are unfounded and to build a defence strategy suited to the tax and criminal consequences of the case.

Bruno Gherardi
Tax lawyer in Nice - Cabinet Valenor