Jeremy Ferrer
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January
THEmain objective of the tax audit conducted by the Directorate-General for Public Finances (DGFiP) is to detect and assess breaches of tax law, whether accidental or intentional, in order to strengthen compliance with fiscal obligations. This process concerns both professionals and individuals:
Tax control has two major objectives:
In its implementation, fiscal control differentiates taxpayers according to their level of honesty. Priority in the fight against fraud is given to the repression of the most serious types of fraud that may lead to criminal proceedings. This fight also extends to tax havens and to complex and abusive tax evasion strategies.
Tax control includesreview of individuals' declarations (usually in the office but sometimes on site), the verification of undeclared activities, and the Professional control, whether in the office or on site.
Research is the first step in this process. Its role is to identify fraud patterns, to collect and centralize information from various sources to initiate tax audits. Research services must therefore be alert to fraud originating both from businesses (such as hidden activities, fictional relocations, or head office fraud) and from individuals (such as false addresses or undeclared bank accounts).
Fraud can range from common practices to more sophisticated methods, involving either individuals (hidden activities, false billing) or groups (scams, tax carousels). It can occur in various sectors, including show ticketing, fictional subcontracting, or hidden internet activities.
Research services focus on data collection to plan the tax audit external, support auditors and combat illegal activities and fraudulent arrangements.
Individual control is based primarily on the analysis of statements. This method involves a critical evaluation of tax returns using all available information, as well as additional information requested from the taxpayer or obtained from third parties. The aim is to identify non-filers and correct errors in declarations, whether in terms of income or assets.
For cases with major challenges, a tax audit is carried out every three years, by cross-referencing information on assets and income. In some cases, an on-the-spot check may be initiated, such as the examination of personal tax situation (ESFP).
For professionals, control is based on on-site visits, the most visible form of verification. This type of control is managed by the national departments, in particular the national and international audit department, the interregional fiscal audit departments (DIRCOFI) and the regional and departmental public finance departments.
Source: https://www.economie.gouv.fr/dgfip/controle-fiscal-et-lutte-contre-fraude
How does a tax audit work for a company?
Deadlines:
Directorate of National and International Audits (DVNI)
She oversees major companies with revenues in excess of 152.4 million euros for sales and 76.2 million euros for services. It is composed of around 350 public finance inspectors on site, with 30 brigades dedicated to each sector of economic activity and 9 brigades dedicated to the expertise of computerized accounting systems. In 2023, the DVNI carried out more than 1,360 checks.
The management of large companies (DGE)
In addition to its management function, it manages the tax files of companies exceeding 400 million euros and takes part in occasional on-site inspections.
The DNVSF (National Directorate for Tax Audits)
She is responsible for checking on site the files of the most important persons in terms of issues and reputation, as part of an on-site check throughout the country.
She has recently started working on a new task which consists in ensuring the management of a portfolio of cases with very high stakes. It ensures control over the correlated income/asset documents in these files using the most appropriate procedures: office control, accounting audit and, if necessary, ESFP.
There are 15 brigades, with 10 brigades for on-site control and 5 brigades for asset control. In 2023, it carried out 525 income-wealth checks and 639 ESFP checks.
DIRCOFIs are services dedicated to fiscal control.
They are appointed to oversee medium-sized businesses, which have profits ranging from 1.5 million euros to 152.4 million euros for sales and from 0.5 million euros to 76.2 million euros for services.
Each year there are between 10 and 32 brigades and around 1,600 auditors, depending on the geographical area covered (6 to 14 departments).
DIRCOFI brigades carried out more than 200 accounting audits in 2023.
Local directions
They are responsible for managing businesses with less than 1.5 million euros in sales and 0.5 million euros in services.
Approximately 2,500 auditors work in over 300 brigades across the region, representing 1 to 10 specialized brigades.
Directorates also have control and expertise centers (PCE), where the agents responsible for expertise and programming for auditors spend part of their time on on-site control operations, which are often simplified.
In 2023, more than 33,400 financial audits were carried out at the departmental level.
Therefore, local tax control is organized into three levels, each with related and separate objectives according to the category of taxpayers.
Auditors are professionals who specialize in taxation.
Les public finance inspectors, who are category A civil servants, are hired through external competition (at the bachelor level or higher) or through internal promotion. They attended a one-year course at the National School of Public Finances, alternating high-level theoretical courses and practical courses in law, accounting and taxation.
There are around 5,000 audit inspectors who work within businesses to carry out a tax audit. They work in an audit team that generally includes 7 to 9 auditors and is headed by a brigade leader, a senior manager.
A tax audit can be applied to individuals and professionals. Whatever the target of a tax audit, it will always follow the same steps, but most often, for individuals, it will be done remotely and for professionals, on the premises of the company.
The moment you receive the tax audit notice marks the start of your tax audit as an individual. It is necessary that the form contains regulatory information such as the name of the auditor, the name of his supervisor, the years over which your tax audit is planned, and that you have the possibility of receiving assistance from an advisor, usually a tax lawyer, during this test.
The audit notice must contain the same information as for individuals if the tax audit would concern you as a professional. It is important to note that for the check to be valid, the government must send it to you by registered mail with acknowledgement of receipt at least two days before the start date of the check.
We are talking about accounting audit when the control concerns a professional. As the name suggests, the auditor will take the time to compare the company's accounting data to the statements made. It is not uncommon for the government to check the premises by going directly to the premises of the company in question. If you are concerned by this situation, you must provide the verifier with all the documents necessary for the smooth conduct of his audit, as well as the possibility of giving him access to your digital tools so that he can also verify the digital documents and documents.
Following the verification phase during a tax audit, in some cases, the tax authorities may have nothing to complain about. He sends a Notice of lack of correction to the controlled taxpayer. However, this situation remains quite rare. In most cases, at the end of the audit phase, the audited taxpayer receives a Rectification proposal. If the tax authorities wish to make corrections, they must be sent by registered letter with acknowledgement of receipt. In the event that the audited taxpayer does not receive this proposal correctly, this would in fact lead to the total cancellation of the tax audit.
The taxpayer must ensure that once the correction proposal is received, it contains a certain number of mandatory information. Among them, we find in particular: the details of the corrections that the tax authorities wish to put in place; the fact that the taxpayer concerned can call on an advisor to be supported; the period within which it is possible to respond to the correction proposal; the signature of the agent in charge of the verification, as well as the contact details of the service on which he depends, and of course, the date on which the document is signed
When the taxpayer receives this correction proposal, he receives a new 30-day period to respond to the tax authority. He still has to gather all the information he needs to support his challenge and offer a solid and well-founded response to the tax authorities. He can also ask for a extension for an additional 30 days of this first period if he feels the need for it.
There is no deadline for the tax authority to review the taxpayer's disputing elements once they have been received. However, in the event that the information provided by the taxpayer is rejected, the tax authorities must provide a clear explanation of their reasons.
If a taxpayer's arguments are not taken into account even after this corrective phase, he will then have the possibility of filing an appeal for certain files.
If the taxpayer and the auditor cannot agree, a last resort is possible: Hierarchical recourse. It is possible for the taxpayer to report disagreements to the auditor's line manager. If unfortunately the main inspector and the taxpayer continue to have disagreements even after that, the taxpayer will have the last option of contacting a departmental interlocutor.
It should be noted that these procedures must be completed before the taxpayer is notified of a collection notice. The taxpayer will no longer be able to use hierarchical remedies once this document is acquired.
When the previous steps are completed and the tax authorities do not take into account the arguments put forward by the taxpayer, it will proceed with the recovery of amounts due for taxation purposes. The taxpayer will receive a new tax notice in the case of an income tax audit. It is a debt collection notice which will be sent to him by the tax authorities for tax audits concerning all other types of taxation.
If the taxpayer still wishes to contest the tax authority's decision, he can file a complaint with the Directorate-General for Public Finances. If the latter request is rejected or if no response is provided within six months, he has no choice but to refer the matter to the competent court.
There will always be a limitation period for a tax audit. However, this will depend on the nature of the control in question.
To collect and process data to select files for a fiscal control. The activities are mainly focused on the most serious fraud risks, such as:
At the level of ministries
The DGFiP is actively involved in the activities of regional intervention groups (GIRs), which focus on the fight against the shadow economy and illegal work, as well as in cooperation with the police and the gendarmerie to combat illicit trafficking. In addition, the BNEE is responsible for intervening in investigations carried out by the judicial police mainly concerning crimes and offenses with a financial impact. The agents have expertise at the national level.
At the national level
The National Directorate of Tax Investigations (DNEF)
The national level of action and coordination of the tax intelligence research system is the National Directorate of Tax Investigations (DNEF). Part of DNEF's services consists in detecting fraudulent mechanisms and conducting research and investigations to propose controls and produce documents. The DNEF services implement the inspection and seizure procedure in accordance with article L. 16 B of the tax procedures book. Finally, the National Directorate carries out external fiscal audits in vulnerable economic sectors, in particular in the areas of intra-Community VAT and VAT carousels.
At the local level
Control and Research Brigades (BCRs)
The BCRs are located in each departmental tax services department and are generally made up of around ten agents under the direction of a head of brigade.
They are responsible for the collection and processing of information, in particular that which is transmitted by other administrations under the right of communication.
Four types of information collection procedures strictly regulated by law exist mainly for research services:
Controlling a company's taxes is neither automatic nor deliberate.
On average, the National and International Audit Directorate (DVNI) Inspects businesses every seven years. Because of the complexity of the transactions they carry out and the financial challenges they represent, very large companies are checked at regular intervals (approximately every 4 years). Whether or not to verify SMEs depends on the information that the tax authority has or will collect.
The issues determine the control methods.
In a few figures, there are nearly 3 million businesses working in the real world. Each year, more than 48,000 on-the-spot tax audits are carried out, which represents around 1.6% of these businesses that are audited on site.
Business programming depends on the effective use of the data available for the DGFiP. It aims to provide objective and optimal coverage of challenges. Scheduling an on-the-spot check always starts with an examination of the documents in the tax file, which is carried out by the office.
It is a critical analysis of declarations filed using data and documents from the company file, as well as computer tools to cross-check and analyze corporate tax and accounting data.
The companies concerned usually ask for written information regarding these points. Under the right of communication, the administration can also obtain information from third parties (suppliers,...).
The information provided by the taxpayer is often sufficient to explain what appeared to be an anomaly, and the case is then closed.
On the other hand, an on-site inspection of the company may be necessary.
Some examples of blinkers :
It is up to the director (i.e. the person in charge of all the public finance departments of a department or the head of an interregional structure specializing in fiscal control) to decide whether to audit a company on the spot, and not to the auditors or their direct manager.
Improving risk analysis and data mining
Risk analysis in business programming consists in evaluating the risk of failure to comply with tax legislation attached to a file based on data declared by taxpayers.
The files that are of the most interest for tax audit can be chosen objectively based on business criteria such as the low margin rate for the declared activity.
Likewise, theObjective of data mining is to improve and automate the process of selecting files to be audited by drawing on the wealth of information from the tax administration and using sophisticated statistical techniques.
These techniques make it possible both to improve the targeting of controls and to detect fraud more quickly, especially the most complex ones, in order to mitigate the financial effects.
La accounting audit aims to examine the accounting on the premises of the company by comparing it with certain factual or material data in order to ensure that the statements made are accurate and sincere.
An exceptional case : an unannounced audit of accounts that is strictly governed by law. The need for immediate physical findings, such as stock review, justifies this procedure.
The Charter of Rights and Obligations of Verified Taxpayers: rights established and guaranteed by law.
Before any undertaking of on-site control, the guarantees enjoyed by the taxpayer are defined by law or case law and are included in this document that is systematically sent to the taxpayer.
Control methods adapted to the computerization of accounting systems
As of 1 January 2014, if an on-the-spot check is carried out, companies using computerized systems must submit their accounts in dematerialized form to the administration. Accounting documents must meet the requirements described in article A 47 A-1 of the tax procedures book.
Guarantees: this procedure respects the oral debate and is not contradictory with the company. On the other hand, the transmission of accounting documents in paper format allows for in-depth exchanges between the auditor and the taxpayer concerning the inconsistencies or omissions observed during the reading of the files.
In addition, when there is computer processing in accounting files, the company is kept informed of the nature of the investigations carried out by the tax authorities (article L.47 A-2 of the tax procedures book).
The auditor summarizes the increases considered at the last meeting at the company's premises, explains the nature and amount of potential penalties, and collects the taxpayer's arguments in response. At the end of this exchange, some proposed corrections may be abandoned if the arguments are accepted.
In all cases, the control operations carried out as part of an accounting audit result either in the sending of a proposal for correction, or in the sending of a notice of absence of correction in the event that the figures declared have not been questioned.
In general, the controls of 98% of SMEs and 88% of large companies have a duration less than 9 months.
It should be noted that the legal duration of intervention for small business is limited to 3 months, with some exceptions.
In addition, the administration carries out targeted checks whenever possible (either on a specific tax, fiscal year or point), which limits the time the auditor is present in the company.
The proposed tax adjustments for the taxpayer are set out in writing in this notice.
In addition, he gives her 30 days to oppose the reorganization.
If the taxpayer does not object to the adjustment with the Directorate-General for Public Finances, he must pay the additional tax due.
The taxpayer must provide comments within 30 days if they object.
Both parties are negotiating to reach an agreement after receiving these comments. If this does not happen, each of the two parties may refer the matter to the departmental committee on direct taxation and trade taxes.
The guarantees enjoyed by the taxpayer during a tax inspection on site are defined by law or case law. They are included in a document called “the Charter of Rights and Obligations of the Verified Taxpayer”, which is systematically given to the taxpayer before the start of the tax audit.
These include:
The line manager and the departmental manager
The taxpayer may meet with the auditor's supervisor during an accounting audit. Then, he has the option of speaking to the department's contact person. The letter informing of the start of the audit indicates the contact details of this high-level official, who is not involved in the conduct of the audit; he is easily reachable.
The national commission and the departmental commissions
The taxpayer can also consult independent bodies chaired by magistrates and composed of representatives of the professional world in certain circumstances. The departmental commissions for direct taxes and turnover taxes or the departmental commissions for the conciliation of registration fees are both.
Large companies are part of the National Commission on Direct Taxes and Turnover Taxes, whose members have the ability to solve the complex problems specific to these taxpayers.
Contentious claim and court appeal
The taxpayer may file a contentious claim with the department responsible for the additional taxes after the tax authority has requested the payment of the additional taxes. He can then refer the matter to the tax judge if his request is rejected or if no answer is given within 6 months.
Depending on the tax in dispute, this is the administrative court or the high court.
If taxpayers who are subject to a tax audit themselves or third parties prevent the auditor from performing his duties in a normal manner, they are exposed to fiscal and criminal sanctions. Physical or verbal abuse against public finance employees may result in legal proceedings in accordance with the criminal code.
Verified taxpayers are informed of this information on the audit notice and in the Charter of Rights and Obligations of Verified Taxpayers.
The signing on 3 March 2011 of a national agreement with the General Directorate of Customs and Indirect Duties (DGDDI), which was implemented at the local level throughout the national territory, made it possible to strengthening cooperation against tax and customs fraud.
With an emphasis on areas of strategic cooperation, emphasis is placed on the most serious frauds, such as VAT fraud, international tax evasion and the use of tax havens. In addition, emphasis is placed on extensive cross-access to IT applications from both partner departments. The national protocol was followed by initiatives to pool and train the agents of the two networks.
The number of external tax audits from customs information amounts to 246 in 2023. There are more than 80 million euros in fees and penalties recalled.
Social protection organizations and the DGFiP work together on four pillars:
On a daily basis, more than 150 DGFiP tax control agents work on the premises of the Ministry of the Interior in collaboration with judicial police agents and officers.
The former collaboration with the Ministry of the Interior, which was strengthened by Three devices, was strengthened by the presence of 50 agents within the National Brigade for Economic Investigations (BNEE) created in 1948, who provide technical assistance and contribute to the programming of external fiscal audit.
493 external tax audits from BNEE and 227 external tax audits from GIR origin were completed in 2023. The associated global financial challenges are significant, representing over 300 billion euros in fees and penalties.
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