Tax inspection: everything you need to know

Tax audits are an often dreaded event for many business owners. For the tax authorities, it's a routine procedure for checking the accuracy of a company's tax and social security declarations.

The tax authorities are obliged to inform you of their visit by letter at least 2 days before the planned date of intervention, except in cases of suspected serious misconduct or malfeasance.

Inspections can be carried out remotely by exchanging documents (you have 15 days in which to send the tax authorities your account books), or physically on your premises. Only 1.5% of inspections require tax inspectors to travel to your premises.

Let's find out everything you need to know to make the most of this episode, and easily complete all the formalities required by the authorities.

What is a tax audit?

A tax audit is a legal procedure whereby the tax authorities verify the accuracy of a company's tax and social security declarations. In other words, its role is to verify that the amounts declared and the taxes paid are in line with the company's actual operating performance.

This involves checking both the accuracy of declarations and the way in which accounts are drawn up. The aim is to check that no illegal practices are being used to modify the company's accounts and improperly reduce its tax liability.

Why is a company subject to a tax audit?

A traditional tax audit, also known as an "internal control", can be carried out at random, without any specific reason.

A document check is generally required. A more in-depth check may be necessary if the administration observes significant variations in the accounts, unusual profit margins compared with industry peers, the payment of substantial benefits in kind, etc.

Occasionally, incomplete or non-existent tax returns, or changes in situation, may also give rise to an audit. In some (rarer) cases, it may be a matter of denunciation, with supporting evidence, of illegal practices on the part of a given company.

How does an on-site tax audit work?

An on-site tax audit requires a certain amount of preparation. The tax authorities require a number of accounting documents to be prepared in advance of the audit (account books, details of certain accounting entries, etc.).

Larger companies are more likely to undergo an on-site tax audit, in order to facilitate the search for accounting information. More often than not, micro-entrepreneurs, very small businesses and SMEs are audited remotely.

How does a remote tax audit work?

This is the most common procedure: a tax audit can be carried out remotely, simply by sending documents.

Simply provide the list of documents requested by the administration, and wait for them to be returned at the end of the inspection.

Since every tax audit is based on an "oral and adversarial debate", it is sometimes necessary to answer the auditor's questions in order to clarify certain contentious issues. You can be assisted by your certified accountant or any other professional during the inspection period, if you wish.

What happens at the end of the control period?

The tax authorities systematically inform you by mail of their conclusions, which may be :

• The presence of unintentional errors (if the company is deemed to be acting in good faith): in this case, the company receives an injunction to pay the taxes due plus 10%.
• Deliberate errors: in this case, the company receives an injunction to pay the taxes due, plus 80% (in the case of abuse of rights or fraudulent practices) or 40% if the company has not directly benefited from the fraud.
• A declaration that the company's accounts are in order, and that no adjustments have been made.

The company has 30 days in which to contest the tax authorities' decision with the relevant departmental commission for direct taxes and sales taxes (CDIDTCA) or the departmental conciliation commission.

How long does a tax audit last?

A remote tax audit lasts a maximum of 6 months from the date it begins, and 3 months if it takes place on site.

The current tax statute of limitations is three years for income tax, corporation tax and all taxes treated as direct taxes (withholding tax, withholding taxes, payroll taxes, CRDS, CSG, social security contributions, etc.). In the event of an audit, always remain cooperative!