13. Tax Inspections in France

1. 13.1. Levels of Control in France
2. 13.2. Sanctions within France
3. 13.3. Time Limits for Recovery
4. 13.4. French Tax Claims
5. 13.5. Determination of Tax Status in France

Whilst you may think that submission of your tax return is the end of the matter, it is not necessarily the case, as you may later be subject to a tax inspection by the authorities.

Last year over 50,000 taxpayers (business and individual) were subject to a tax inspection. The government recovered millions in underpaid taxes and fines!

In the main, the authorities prioritise investigation into business operations. Nevertheless, it is not unusual for an individual taxpayer to be asked for a written response to one or more queries concerning their tax return.

13.1. Levels of Control in France

There are three levels of control exercised by the tax authorities.

At the first level they will undertake verification that you have correctly completed the return and, if so, you will hear no more from them until your receive your tax notice. The is process is called le contrôle formel.

At a second level you may later receive a (recorded delivery) letter from them asking for clarification, or further details, often in the form of a questionnaire, which you will need to complete and return to them. This is process is called le contrôle sur pièces.

Thus, if there appears to be some inconsistency in the information provided on the tax declaration, or your circumstances have changed significantly from your last return, or you are seeking a tax concession, a demand for further information may be made.

If you are merely asked for further information to clarify you will be given 30 days in which to respond; if you are asked to provide documentary justiification you will be given two months.

It is important you reply within these timescales, failing which the tax authority can proceed to simply impose a tax charge upon you. You may also receive a fine. This procedure is known as taxation d’office.

Accordingly, make sure you keep all paperwork associated with your tax affairs in good order. You are required by law to keep them for a minimum of six years.

At a third level they will undertake a detailed investigation, (called la vérification approfondie) into your case, about which you will be specifically informed. These investigations are undertaken by a specialist branch of the tax authority called l'Inspection générale des Finances.

Their detailed investigation into the tax affairs of and individual taxpayer takes the form of an examen contradictoire de l'ensemble de la situation fiscale personnelle (ESFP), whilst that for a business and professionals a vérification de comptabilité.

The risk of such an investigation happening to an invidividual taxpayer is very low, despite the impression which may be given by tax advisors, or the tax authority themselves!

As a general rule the major focus of enquiry is on larger business operations (notably the recovery of underpaid VAT) and on those sectors where where cash payments are widely used, e.g. building sector, bars and restaurants.

However, if they so choose to do so, in investigating your circumstances the tentacles of the tax authority can be very long.

In business cases it is not unusual for the tax authority to seek judicial consent to make unannounced visits to premises, and to seize documentation and computer equipment.

One protection afforded to taxpayers in all of this is that, if the tax authority do undertake an investigation, once completed they cannot go back and reopen the case and the investigation is limited to one year.