Proposed tax reassessment: how can you defend your position effectively?

Receiving a proposed reassessment (proposition de rectification) means that the tax authorities intend to change the tax bases you declared. This step does not, however, finally establish the tax on its own: on the contrary, it opens an essential phase of discussion with the tax authorities.

The adversarial reassessment procedure is the ordinary framework where the tax authorities find an understatement, inaccuracy, omission or concealment in the information used to calculate the tax. It is characterised precisely by a dialogue between the taxpayer and the tax authorities and by several procedural safeguards.

The key is therefore not to treat the proposed reassessment as a mere notification to be endured.

The first weeks after it is received are decisive for analysing the grounds relied on by the tax authorities, identifying any weaknesses in their reasoning and building a response supported by legal and factual arguments.

1. Proposed reassessment: understanding the intended adjustments precisely

A proposed reassessment must be sufficiently reasoned

The adversarial reassessment procedure is initiated by the notification of a proposed reassessment to the taxpayer.

This document has a dual function: it informs the taxpayer of the intended adjustments and opens the dialogue with the audit team.

The tax authorities must set out sufficiently clearly the nature, grounds and amount of the adjustments they intend to make.

Article L. 57 of the French Tax Procedures Code (Livre des procédures fiscales, LPF) requires reasoning that enables the taxpayer to understand the legal and factual elements relied on against them and to take a position in full knowledge of the facts.

The first analysis must therefore cover both the substance of the reassessment and the validity of the proposal itself.

Insufficient reasoning, poorly established facts, a questionable legal characterisation or a contestable calculation method may each provide grounds for defence.

The taxpayer has a period in which to submit observations

The proposed reassessment must state the period within which the taxpayer may respond.

This period is in principle 30 days under Article L. 11 of the LPF. It may be extended by a further 30 days at the taxpayer’s request, in accordance with Article L. 57 of the LPF.

This period must be used to analyse the entire file: the documents relied on by the tax authorities, the provisions invoked, the applicable case law, the consistency of the calculations and the financial consequences of the adjustments.

Failing to respond within the time allowed has the same effect as accepting the proposed adjustments. Conversely, the taxpayer may submit observations challenging all or part of the adjustments.

Responding is therefore not simply a matter of expressing disagreement. It must be shown, point by point, why the adjustments should be withdrawn or reduced.

2. The taxpayer’s observations: the adversarial debate can lead to the withdrawal of adjustments

The response to the observations is a decisive stage

Where the taxpayer submits observations, the tax authorities are required to examine and respond to them.

They may accept the arguments put forward and withdraw all or part of the intended adjustments.

If they maintain their position, they must give reasons for rejecting the observations in a response to the taxpayer’s observations, generally on form no. 3926.

At each stage of the written procedure, the tax authorities must also state, in accordance with Article L. 48 of the LPF, the amount of tax and penalties resulting from the adjustments they maintain.

This phase therefore makes it possible to measure precisely the points on which the tax authorities agree to revise their position and those on which disagreement remains.

Persistent disagreement opens new avenues for discussion

Receiving an unfavourable response to the observations does not necessarily end the debate.

The taxpayer may refer the matter to the inspector’s line manager and then, where applicable, to the departmental senior officer (interlocuteur départemental).

These referrals must be made within precise time limits: in particular, the referral to the line manager must be requested within 30 days of receipt of the response to the taxpayer’s observations.

This phase is a fresh opportunity to present the file at a different level of the tax administration and to revisit the points of disagreement that remain.

It should therefore not be approached as a mere formality, but as a genuine stage of negotiation and defence.

3. Tax commissions: pursuing the challenge before the tax is issued for collection

Certain disputes may be referred to a commission

Where the disagreement persists, certain questions may be submitted to a specialised commission.

Depending on the nature of the dispute, this may be in particular the departmental or national commission for direct taxes and turnover taxes, the departmental conciliation commission or the advisory committee on the research tax credit.

The departmental commission for direct taxes and turnover taxes deals in particular, under Article L. 59 A of the LPF, with certain questions of fact relating to business profits, turnover, remuneration or certain provisions and expenses.

Its opinion is not binding on the tax authorities, but its involvement can have a significant influence on the rest of the case and on the burden of proof in any subsequent litigation, under the conditions laid down in Article L. 192 of the LPF.

The strategy must be built from receipt of the proposed reassessment

The adversarial reassessment procedure ends in particular with acceptance of the adjustments, rejection of the observations where no commission is involved, or notification of the opinion given by the competent commission. The tax authorities may then issue the additional tax for collection.

The quality of the defence developed during the adversarial phase is therefore decisive.

The involvement of a tax lawyer makes it possible to analyse the validity of the proposed reassessment, to check the legal grounds relied on by the tax authorities, to reconstruct the facts where their presentation is open to question and to draft precise, reasoned and well-supported observations.

It also makes it possible to identify the remedies that may be used, to prepare the exchanges with the line manager or the departmental senior officer and, where the conditions are met, to refer the matter to the competent commission.

Based in Nice, the Valenor firm assists taxpayers from the moment they receive a proposed reassessment, in order to build a defence strategy suited to each ground for reassessment and to bring the available procedural safeguards to bear before the tax is issued for collection.

Our objective is to turn the adversarial phase into a genuine forum for defence, in order to secure the withdrawal or reduction of the adjustments where the legal and factual arguments allow.

Bruno Gherardi
Tax lawyer in Nice - Cabinet Valenor