Tax Audit: Rights and Obligations of the Business

A tax audit is not a negotiation, but nor is it a one-way procedure. The tax authorities have extensive powers; the company has guarantees, the breach of which renders the procedure null and void. Knowing these guarantees before the audit, not during it, changes the outcome more reliably than any argument on the merits.

Three forms of audit, three regimes

The desk-based review is carried out from the tax authorities' offices, based on the returns filed. It gives rise to requests for information, clarification or justification. These requests are not trivial: some open a response period, the expiry of which authorises an ex officio assessment.

The accounting audit takes place on the company's premises and covers the entire accounts. This is the most burdensome form, and the one that offers the taxpayer the most guarantees.

The remote accounting examination is an intermediate form, conducted remotely on the basis of the accounting entries file that the company submits. It avoids an on-site presence while covering the same items.

Guarantees before the audit

An accounting audit cannot begin without the prior sending of a notice of audit. This notice states the years subject to the audit and the taxes concerned, and informs the company of its right to be assisted by an adviser of its choice.

Two practical consequences:

• The company must be given a reasonable period between receipt of the notice and the first intervention, in order to arrange this assistance. An intervention that follows too soon is an irregularity.
• The mention of the right to assistance is substantive. Its omission renders the procedure null and void.

The notice is accompanied by the charter of rights and obligations of the audited taxpayer, some provisions of which are enforceable against the tax authorities.

The proceedings and the oral debate

An on-site audit requires an oral, adversarial exchange with the auditor. This is not a mere courtesy formality: its absence is grounds for nullity. In practice, the company must have had the opportunity to discuss the points examined before the conclusions are finalised.

The duration of an on-site audit is limited to three months for companies whose turnover does not exceed certain thresholds. This cap protects small structures from an audit that would drag on; it is set aside in a few situations, notably in the case of serious accounting irregularities.

For its part, the company must produce the accounting documents requested and hand over its accounting entries file in dematerialised form. Failure to produce this file, or its non-compliance with the required format, is penalised by a fine and weakens the overall position — this is the point at which the quality of upstream document processes pays off or costs dearly, as illustrated by the requirement for a reliable audit trail.

The proposed adjustment and response deadlines

At the end of the audit, the tax authorities notify either a notice of no adjustment, or a proposed adjustment. This document must be substantiated: it sets out the adjustments envisaged, their legal basis and their amount, in a manner sufficiently precise to allow for a useful response. Insufficient substantiation is challengeable in itself.

The company has a period of thirty days to respond, extendable by a further thirty days on simple request. This extension is granted as of right: requesting it is almost always worthwhile, if only to build a well-documented response.

Remaining silent during this period constitutes tacit acceptance of the adjustments. This is the most costly and most frequent mistake, as it is irreversible on the very principle of the adjustment.

Remedies after the response

If the disagreement persists, several levels open up in succession, and it is possible to pursue them all:

• The hierarchical appeal to the auditor's supervisor.
• Referral to the departmental ombudsman, a higher level.
• Referral to the commission for direct taxes and turnover taxes, which has jurisdiction over questions of fact — its opinion is not binding but carries weight.
• A formal claim, followed by referral to the competent court.

These remedies are not mutually exclusive and do not suspend the collection process, except where a request for deferred payment is made, which may be conditional on the provision of guarantees.

Penalties: what distinguishes a mistake from a failure

The final amount depends less on the adjustment itself than on the classification applied.

The late payment interest applies in all cases: it compensates for the Treasury's cash-flow loss and does not constitute a penalty. Depending on the established conduct, the following are added:

• A surcharge in the case of deliberate failure, where the tax authorities establish intent.
• A significantly heavier surcharge in the case of fraudulent manoeuvres or abuse of law.
• Specific surcharges in the case of failure to file or late filing of returns.

The line between a good-faith error and a deliberate failure is drawn on the basis of concrete factors: repetitive nature, size of the amounts involved, and any prior warnings. Rigorous accounting, in which depreciation and provisions are individually substantiated, argues in favour of good faith far more effectively than a statement of intent.

Use cases

Receipt of an audit notice. Immediately check three things: the years covered, the period before the first intervention, and the mention of the right to assistance. Inform your adviser before the first meeting, not after.

Proposed adjustment received. Systematically request the thirty-day extension, then respond point by point, providing supporting evidence. Silence constitutes acceptance.

Persistent disagreement. Pursue the remedies in order, without skipping any: each level is an opportunity for reconsideration, and the tax commission usefully rules on questions of fact.

Frequently asked questions

Can the tax authorities carry out an audit without giving notice? An accounting audit requires prior notice and a sufficient period. A desk-based review, on the other hand, takes place without an on-site intervention and is conducted through written requests.

How many years does the audit cover? The standard statute-of-limitations period covers the previous three financial years, with extended periods in certain situations, notably in the case of undisclosed activity.

Can the company be assisted? Yes, by an adviser of its choice. The audit notice must mention this right, and omitting this mention renders the procedure null and void.

What is the deadline for responding to a proposed adjustment? Thirty days, extendable by thirty days on simple request. Silence constitutes acceptance of the proposed adjustments.

Does the hierarchical appeal suspend payment? No. Only a request for deferred payment suspends collection, and it may be conditional on the provision of guarantees.

How can the surcharge for deliberate failure be avoided? By demonstrating good faith, which is prepared in advance: complete supporting evidence, well-documented positions, consistency over time. This is a matter of building a file, not of argumentation.

Key takeaways

Three moments determine the outcome of an audit. Receipt of the notice, when the formal guarantees are checked — sufficient notice period, mention of the right to assistance — the irregularity of which vitiates the entire procedure. The proceedings themselves, which require an effective oral, adversarial exchange. And the thirty-day period following the proposed adjustment, which is extendable, and whose silent expiry constitutes acceptance.

Ahead of these three moments, what provides protection remains the quality of the supporting evidence, a subject developed in our article on corporate taxation. An audit is not won through argumentation: it is won through a file built before it even begins.