Tax audits: what safeguards protect the taxpayer?

Whether the procedure is an on-site audit of the accounts, a remote examination of the accounts or an in-depth examination of personal tax affairs, the taxpayer enjoys safeguards designed to ensure that they are informed of the procedure initiated, that the adversarial principle is respected and that their rights can be effectively exercised.

These safeguards govern the audit from its commencement to its conclusion. Some must be complied with even before operations begin, while others enable the taxpayer to understand the proposed adjustments, to refer the matter to the inspector’s line manager or to obtain disclosure of certain documents.

They are common to the main audit procedures, although each procedure also has rules of its own.

Compliance with them is particularly important: failure to observe certain essential procedural safeguards may affect the validity of the procedure and, in some situations, lead to the discharge of the assessments made at the end of the audit.

1. How must the taxpayer be informed of the tax audit?

Must the tax authorities give the taxpayer notice before an audit?

In principle, the tax authorities may not begin an on-site audit of the accounts (vérification de comptabilité), a remote examination of the accounts (examen de comptabilité) or an in-depth examination of personal tax affairs (examen contradictoire de la situation fiscale personnelle) without first informing the taxpayer.

Article L. 47 of the French Tax Procedures Code (Livre des procédures fiscales, LPF) thus requires a notice corresponding to the procedure initiated to be sent or delivered.

This notice informs the taxpayer in particular of the years under audit and must tell them that they may be assisted by an adviser of their choice.

Where an audit requires an initial visit, a sufficient period must also elapse between receipt of the notice and the actual start of operations, so that the taxpayer can prepare for the audit and arrange for assistance.

The case law has thus established the requirement of a reasonable period between these two events.

There is, however, an exception for unannounced audits. The tax authorities may then immediately make certain factual observations, in particular as to the existence and condition of the accounting records. A detailed examination of the accounts may nevertheless only begin once the taxpayer has been given time, in particular to obtain the assistance of an adviser.

What rights are set out in the Charter of the audited taxpayer?

The taxpayer must also be informed that they may consult the Charter of the rights and obligations of the audited taxpayer.

This charter sets out the main rules governing the conduct of the audit and the safeguards enjoyed by the person audited.

Since 2016, it is no longer systematically handed over in paper form with the notice of audit: the notice must state that it can be consulted on the tax authorities’ website.

Its importance should not, however, be underestimated. The safeguards it contains are binding on the tax authorities under the conditions laid down by the LPF.

In particular, it provides that, where difficulties arise during the audit, the taxpayer may refer the matter to the inspector’s line manager and then, under certain conditions, to the senior officer designated by the tax authorities (interlocuteur).

These remedies provide practical protection where dialogue with the audit team no longer makes it possible to resolve a difficulty concerning the conduct of the audit or, later, the proposed adjustments.

2. What information must the tax authorities provide at the end of the audit?

Must the taxpayer be told the financial consequences of the audit?

Where the tax authorities intend to make adjustments, they cannot simply state the new taxable bases.

Article L. 48 of the LPF provides that the proposed reassessment must also inform the taxpayer of the amount of the duties, taxes and penalties resulting from the proposed adjustments.

This requirement enables the taxpayer to grasp immediately the real financial stakes of the audit and to decide on the strategy to adopt in their response.

Where the adjustments are subsequently reduced during the procedure, this information must, under certain conditions, be updated before the tax is issued for collection.

A taxpayer who has been audited may also request disclosure of the report drawn up by the inspector under the conditions laid down in the Code governing relations between the public and the administration.

This document may provide useful information on the conduct of the operations, the findings made or the methods used by the audit team, subject in particular to the requirements of professional secrecy.

Must the tax authorities inform the taxpayer even where no reassessment is made?

Yes. An audit cannot simply end without the taxpayer knowing its outcome.

Article L. 49 of the LPF requires the tax authorities to notify the taxpayer of the results of the audit, whatever its conclusion.

Where adjustments are envisaged, the taxpayer receives a proposed reassessment or, depending on the applicable procedure, a notification of the assessed bases.

Where the audit reveals no anomaly justifying an adjustment, the tax authorities must also inform the taxpayer by means of a notice of no adjustment.

This formal step is of value beyond merely informing the taxpayer. Under certain conditions, the points actually examined that gave rise to no adjustment may also benefit from the tax guarantee and be relied on against the tax authorities in a later audit.

3. What remedies and protections can be invoked during or after the tax audit?

Can the matter be referred to the inspector’s line manager?

During an on-site audit of the accounts, the taxpayer is first entitled to an oral exchange with the inspector in which the taxpayer can respond to the findings and arguments put forward. Depriving the taxpayer of this exchange renders the procedure irregular. Where the audit gives rise to difficulties, however, the taxpayer is not limited to exchanges with the inspector in charge of the file.

The Charter of the audited taxpayer provides that the taxpayer may request the intervention of the inspector’s line manager and then, if the disagreement persists and the conditions are met, that of the competent senior officer.

These remedies may be used at two different stages.

During the audit operations, they may concern in particular difficulties affecting their conduct.

After the tax authorities’ response to the observations made on the proposed reassessment, a further referral may also be made, as part of the adversarial procedure, concerning the merits of the adjustments maintained.

The Conseil d’État regards these remedies as essential procedural safeguards where they are available to the taxpayer.

In practice, using them can place the file in a different perspective from the one adopted by the inspector and secure a fresh review of certain points.

Duration, repeat audits, information from third parties: what other protections?

The duration of the audit is also limited. For businesses whose turnover does not exceed the thresholds of the simplified tax regime, an on-site audit may not, in principle, last more than three months. A remote examination of the accounts, carried out from the tax authorities’ offices, is limited to six months, and an in-depth examination of personal tax affairs to one year. These periods are subject to exceptions and extensions, in particular in the case of an undeclared activity or seriously irregular accounts; outside those cases, exceeding them renders the adjustments irregular.

Subject to several statutory exceptions, the taxpayer is also protected against repeat audits.

Articles L. 50 and L. 51 of the LPF restrict the tax authorities’ ability to begin a new audit of the same taxes and the same period once a first audit has been definitively completed.

This rule is intended to prevent a taxpayer from being subjected indefinitely to new audits of the same items.

It is nevertheless subject to several exceptions, in particular where only part of the business was examined, in certain situations of fraud, where a request for information has been sent to a foreign authority, or where specific circumstances provided for by law allow a further intervention.

Another essential safeguard concerns information obtained from third parties.

Where the tax authorities use such information or documents to make an assessment, they must, under Article L. 76 B of the LPF, inform the taxpayer of their content and origin.

If the taxpayer so requests, they must also provide the documents concerned before the tax is issued for collection, within the limits of professional secrecy.

This safeguard enables the taxpayer to know the external information being used against them and to respond effectively to it during the adversarial procedure.

All of these rules should be examined from the start of the audit, and not only once adjustments are finally notified.

The involvement of a tax lawyer makes it possible in particular to check that the procedure was validly initiated, to assist the taxpayer in their exchanges with the inspector, to make the appropriate referrals to line management and to identify any irregularities that may affect the adjustments.

Based in Nice, the Valenor firm assists private individuals and businesses at every stage of a tax audit, from receipt of the notice of audit to the challenge of any adjustments.

We ensure that the safeguards granted to the taxpayer are effectively respected, anticipate the difficulties that may arise during the audit and build a defence strategy suited to what is at stake in the file.

Bruno Gherardi
Tax lawyer in Nice - Cabinet Valenor