Tax Audit: Rights and Obligations of the Business

Introduction

The tax audit constitutes a step feared by many directors, but largely manageable when one knows one's rights and obligations. Governed by the Tax Procedures Code (LPF), it allows the tax administration to verify the accuracy of declarations submitted by businesses in respect of corporation tax, VAT, CFE or CVAE. In the face of the growing importance of desk-based controls and the generalisation of data mining via the CFVR device (Fraud Targeting and Request Enhancement), every business must anticipate and structure its tax documentation. This article details the different forms of audit, the safeguards offered to the taxpayer and the best practices to adopt to secure your tax position.

The different forms of tax audit

The administration has several tools at its disposal. Desk-based audit, provided for in Articles L. 10 et seq. of the LPF, is carried out from the verifier's office, based on declarations and documents already submitted. Accounting verification (Article L. 13 of the LPF) takes place in principle on the business premises and covers all accounting operations. Accounting examination (Article L. 13 G of the LPF), introduced in 2017, allows remote monitoring of the Accounting Records File (FEC). Finally, the targeted verification focuses on a specific tax or limited period.

Each procedure is subject to strict rules: sending of an audit notice, reasonable preparation time (15 days minimum recommended), maximum duration of three months for SMEs subject to the simplified regime (Article L. 52 of the LPF).

The rights of the audited taxpayer

The audited business enjoys substantial safeguards. The audit notice must mention the Charter of rights and obligations of the audited taxpayer, binding on the administration. The director may be assisted by a consultant of his or her choice (accountant, tax lawyer), a right whose non-compliance results in the nullity of the procedure.

Oral and adversarial debate is mandatory throughout the on-site audit. At the end of the audit, a proposed amendment (form no. 2120) must be reasoned in law and in fact (Article L. 57 of the LPF). The business then has 30 days, renewable for a further 30 days on request, to submit its observations.

In the event of persistent disagreement, several remedies are available: referral to the superior, to the departmental liaison officer, to the Departmental Commission for Direct Taxes and Taxes on Turnover, then contentious proceedings before the Administrative Court.

The obligations of the business

The business must retain its accounting documents and supporting documents for 6 years (Article L. 102 B of the LPF), or even 10 years for social documents. Since 2014, the submission of the Accounting Records File (FEC) in dematerialised format has been compulsory when the audit is opened (Article L. 47 A of the LPF); a non-compliant FEC is subject to a fine of €5,000 or 10% of the amounts reassessed.

The obligation to cooperate requires truthfully responding to requests, without however going beyond the legal scope. Businesses with a turnover of more than €400 million must also maintain transfer pricing documentation (Article L. 13 AA of the LPF).

Conclusion

Mastering the rules of tax audit means transforming a constraint into a safeguarding lever. Rigorous documentation, a compliant FEC and support from an experienced consultant make it possible to considerably limit reassessments and penalties. Anticipating also means knowing how to activate voluntary disclosure schemes or tax rulings to secure sensitive positions beforehand.