7.1. Levels of Tax Control in France

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

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 the tax authority can seek judicial consent to make unannounced visits to premises, and to seize documentation and computer equipment.

i. Le contrôle formel

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.

ii. Le contrôle sur pièces

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.

iii. Examen contradictoire de la situation fiscale personnelle (ESFP)

At a third level they will undertake a detailed investigation, (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 la situation fiscale personnelle (ESFP), whilst that for a business and professionals it is called vérification de comptabilité.

You will be given 60 days to produce your banks statements and other papers. Once they have examined your papers, they will write to you and you then have another 60 day in which to respond, or risk a penalty.

Even though the scheme may be strictly within the law, if the tax authority later judge it to have been divised merely to reduce liability to the payment of tax they can declare the scheme to be void.

If so, the scheme is called an abus de droit.

Notable schemes which have fallen foul of this general principle are those which try to get round the rigid French inheritance laws.

You could then be liable for payment of the arrears of tax and penalities.

The golden rule – by all means use advisors, but make sure all discussions with them are recorded in writing, and that letters are posted by recorded delivery, lettre recommandée avec accusé de réception.

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