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July 12, 2013
Everything You Need to Know about France’s New Tax Audit Rules for 2014
By Frederic Portal, Ataway Director of Strategy and Alliance

A new program to revise the current tax audit rules and procedures will extend to all taxpayers in France beginning in 2014. Will your business be prepared for the switch?

Today, almost all companies keep their accounts on a computer. The last French government supplementary budget for 2012, published on December 29, substantially amends the rules of tax audits for companies that keep their accounts on a computer. The new regulations will go into effect January 1, 2014, and any company with a computerized accounting system that is subject to a tax audit will be required to transmit its data administration in the form of computer files.

How the Current Audit System Works

Under the current system, a company holding paperless accounting in the event of a tax audit may select from two options. The company can opt to present their data to the tax authorities either in electronic or paper form. If the controller wants absolute control over the computer files, the request must be made from the company and can be provided in any of the following ways:

  • • Give the controller complete access to the company’s computers and information system
  • • Ask the controller what data it needs to make the extraction of the data and provide the results to the controller
  • • Provide digital copies of the computer files to the controller on external hardware, such as on a CD or USB.

Under the existing rules, French tax authorities may require a company to provide additional files beyond its accounting records, including any data that may have a direct impact on accounting.

The controller can also request the company to provide any data related to business management, procurement, production management, payroll, etc.

What Will Change & How to Avoid Penalties

Beginning January 1, 2014 when the new system goes into effect, controllers will be able to take advantage of the new law to directly recover internal company files containing a wealth of information, including valuable or strategic data.

For tax audits incurred after January 1, companies continuing to use their computerized systems accounts will be required to pass along any computerized accounting (FHEC) to the tax authorities (Supplementary Budget Law for 2012, Article 14, Published December 29, 2012).

Please note that the delivery of paperless files will included in the legislation from “the beginning of the control.” Companies will thus need to be able to quickly retrieve their accounting data in any format required by the tax authorities. However, as with many information technology systems, the extraction may require complex data processing or the involvement of an outside provider. Therefore, companies should be prepared to anticipate any requests for the files and supply then to the auditor at the first control meetings.

Non-compliance with the new requirements will be heavily penalized by French tax law (Section 1729 D Tax Code - CGI), which charges a fine amount based on the outcome of tax audits (and cannot be less than € 1,500 per year subject to tax audit). Fine amounts are as follows:

  • • In the absence of recovery, the penalty is equal to 5 ‰ from the amount of sales reported for each year subject to tax audits.
  • • In case of recovery (s), the penalty is equal to 5 percent the amount of revenue raised each year subject to tax audit.

Also note that the default presentation of accounts in dematerialized form will now constitute an "opposition to tax audit." This will be punished, in addition to the above penalty, according to the estimated assessment of tax bases in the company (CGI, LPF, art. L. 74) and by applying an increase of 100% in recall rights (Article 1732 of the Code).

More details will soon be provided by the tax administration by decree (eg, list of accountants to send in dematerialized form and technical standards required for paperless files transmitted documents).

If a tax audit is initiated in 2014, it should theoretically affect the years ending 2011, 2012 and 2013 due to the recovery time of three years of tax administration.

How to prepare your business: 4 Must-Follow Steps

For all these reasons, we strongly recommended that companies set up a standard procedure now that systematically establishes the Historical Files Scriptures Accountants (FHEC). The earlier, the better.

Some guidelines to follow when setting up these procedures:

  1. Establish a multidisciplinary team (eg, tax managers, legal, accountants and DSI) to manage regulatory requirements and anticipate the demands of the Auditor treatment;
  2. Involve the Financial Officer to add to the scope of internal control compliance of computerized accounting and conduct periodic compliance audits;
  3. Involve the legal department to prevent certain business decisions (eg, reorganization accounting, restructuring) which might break compliance of accounting.
  4. The management of a tax computerized control cannot be improvised at the last minute and will have to be implemented before the receipt of the audit notice.

For more information on the new tax regulations, go to La Revue Fiuciaire’s website (in French only):

Consult with Ataway’s Team of Experts today, and learn how we can provide Solutions for your business in compliance with any Local Statutory Requirement.

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