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This chapter is not exhaustive and is limited to broadly outline the tax consequences of the main events occurring when doing business in France. It does not constitute a tax advice or a client - attorney relationship. Materials are not suitable for tax analysis. Visitors are invited to consult a tax lawyer before taking any decision.
List of the most frequent tax audits developped below :
Tax audit without inspection of the books and records
Full audit of books and records
Diagnostic review
Partial audit
Computerized accounting tax audit
House search and seizure
 The new Taxpayer's Charter "Charte du Contribuable" is now available on the web site of the French Tax Authorities Charte du contribuable. The Charter explains the rights and obligations governing the relationship between the taxpayers and the French tax authorities e.g. presumption of good faith of the taxpayers, access to clear ruling or tax audit limited to 3 months for small enterprises and 9 months for medium enterprises.
The French tax authorities "DGI" use several types of tax audits. The most frequent are summarized below.
The tax audit carried without inspecting the books and the records of the taxpayer "Contrôle sur pièces" are used for all type of business and all kind of taxes. The tax officer checks the consistency of each tax return, cross checks the global consistency of all the tax returns filed by the same taxpayer and last compares the information provided by the tax returns with the data collected from other sources.
Such audits are carried out at the tax office. The auditor contacts the taxpayer or his adviser only if he discovers irregularities or potential ground for assessment. If the taxpayer is not able to convince the tax officer that his filing position is correct, the tax authorities make an adjustment and/or propose a full audit of books and records of the taxpayer.
The full audit of books and records focuses on the audit of the taxpayer's books and records. The manager of the legal entity receives a written prior notice of the full audit by mail with acknowledgement of receipt. This prior notice mentions the tax years and the taxes which will be audited. The name and the address of the field auditor and of his supervisor are also mentioned in the letter. The audit of a small business cannot last longer than 3 months.
The diagnostic review is limited to small businesses. It is in fact a full audit of books and records (See above) which starts with a 2 - 3 days analysis of the potential tax exposures existing in the entity. If the level of risk is nil or very limited, the audit is stopped. If the level of risk is high enough, the audit continues like a full audit of books and records
The partial audit targets only one kind of tax e.g. VAT. The manager of the legal entity receives a written prior notice of the partial audit by mail with acknowledgement of receipt. This prior notice mentions the tax years and the taxes which will be audited. The name and the address of the field auditor and of his supervisor are also mentioned in the letter. Should a full audit be decided, the taxpayer will receive a new written notice for the full audit (See above).
The computerized accounting tax audit (or CFCI in french) : the tax authorities trained a great number of it's auditors to the use of a specific software allowing a rapid audit of all the data intervening directly or indirectly in the in the formation of the account or tax result (articles L13 al 2 of the French Tax Procedures Code) from any type of source. The volume of the transactions is no longer an obstacle. A tax auditor can thus quickly acertain himself that the whole of the data in a company's computer system (for example, data archived on it's hard drives) has been recorded in conformity with the applicable tax rules. In matters of computerized accounting, companies must be extremely vigilant. They must assure themselves that they are constantly respecting the applicable regulations (tax laws, instructions, General Accounting Plan ...) and make sure that, in accordance with article 420-5 of the GAP, their accounting software is chronologically saving the entries of the day-book and the inventory-book. Such as the accounting legislation prescribes, these entries must be irreversible (article 420-5 GAP) and must be raisable at the time of the presentation of the day-book, ledger and inventory-book (article 410-6 GAP). Also, the company's accounting software must use a periodical closing procedure such as requires article 420-6 GAP. It is also important that the company be able to guarantee the constant accounting traceability, between justificatory pieces and accounting entries (it is one of the requirements of article 410-3 GAP) and that she dispose of the documentation regarding the procedures employed and the organisation of the accounting works for all unprescribed fiscal years susceptible of being verified (article 410-2 GAP).
The house search and seizure allows the French tax authorities to request the competent jurisdiction to authorize a house search and the seizure of documents if there is evidence of fraudulent activities. The presence of a police officer is required during the entire house search.
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