Tax Disputes Guide in France

The French tax authorities (FTA) are free to determine which taxpayers will be audited; audits may be triggered by events such as an important transaction, bad buzz in the media or a delay in filing returns. The FTA use tools such as databases and data mining, but large companies are audited approximately every 3 years. To limit or exclude a tax audit, taxpayers may notably:

• request a ruling from the FTA on a particular issue, which will protect them against a future reassessment
• spontaneously regularise errors before any notice of tax audit in order to reduce tax penalties
• provided that serious penalties do not apply, regularise errors during a tax audit in order to reduce late payment interest.

For most taxes, the FTA have until the end of the third year after a tax becomes due to reassess it. This period is interrupted by the notification of a reassessment notice, which then grants the authorities a new period of the same length as the interrupted period to issue the corresponding tax collection notice. In exceptional circumstances, the statute of limitations available to the tax authorities is extended. For example, in cases involving undisclosed activities, the tax authorities may exercise their right of reassessment until the end of the tenth year following the year in which the tax was due.

The FTA have broad powers to investigate. They may issue an optional or mandatory request for information, and it is always recommended to respond precisely within the allotted time. They may also obtain information from any third parties by making binding requests.

The FTA have the power to carry out dawn raids and seizures. However, this procedure is strictly regulated: it can only be implemented after authorisation by the liberty and detention judge of the judicial court.

Finally, the tax audit procedure is the method most frequently used by the FTA to check companies’ financial results.

Taxpayers have rights guaranteed by law and by the Charter of Taxpayers’ Rights and Obligations. These notably include the right to be assisted at any time by a legal counsel, to have sufficient time to submit comments after receiving a notice of reassessment, to obtain the documents based on which the FTA ground their reassessments, and to request a meeting with the auditor’s supervisor. In certain cases, the taxpayer may also refer the matter to an independent administrative commission.

The FTA is bound by professional secrecy. The only information that a taxpayer may refuse to disclose, including during dawn raids, is that covered by legal privilege.

Various tax penalties may apply, including proportional surcharges such as a 10% penalty for late filing, 40% for wilful misconduct, and up to 80% for fraudulent practices or abuse of law. Late payment interest also applies at a rate of 0.2% per month.

Tax penalties may be contested before the tax authorities, and then before the tax courts. The FTA may also agree to reduce them discretionarily as part of a tax settlement.

Judicial judges may impose criminal penalties for fraud, including fines of up to EUR 500,000 (or EUR 3 million for organised crime) and prison sentences of 5-7 years. These penalties may also be subject to negotiation prior to judgement as part of certain ad hoc procedures.

The tax audit procedure starts with a notice to the taxpayer, followed by investigations and possibly a reassessment notice. The taxpayer then has 30 days – renewable once – to respond, and may request a meeting with the tax auditor’s supervisors. If reassessments are upheld, a tax collection notice is issued (total duration: 1-3 years).

Taxpayers who disagree with a tax reassessment must first file a claim before the FTA and wait for either its explicit or implicit rejection, before lodging an appeal with the administrative court. After the exchange of written submissions before the court, the case is scheduled for a hearing during which the parties may present oral observations.

The taxpayer may exercise an alternative dispute resolution mechanism (e.g. a meeting with the auditor’s supervisor, seizing of an administrative commission), and may also request mediation, although such procedures remain uncommon in the tax field due to the complexity of disputes.

At any time during the procedure, the FTA may agree on a discretionary reduction of the penalties. The taxpayer and the FTA may also reach a legally grounded settlement reducing the amount of the reassessment.

Furthermore, the taxpayer may request, in their claim, a payment deferral until the decision of the court of first instance. Guarantees covering the disputed amount in tax will be required by the FTA. 

There are no courts specialised in tax matters in France; however, certain chambers within the courts are designated to handle such cases, among others.

The tax litigation system has three levels: first instance, appeal and then the Supreme Court which rules only on reasons of law. When the Supreme Court overturns a decision of the administrative court of appeal, it generally does not rule definitively on the dispute and instead refers the case back to the same court. In such cases, a second – and final – appeal may be brought before the Supreme Court.

First instance and appeal each generally take between 18 months and a few years. Proceedings before the Supreme Court may be faster.

Since 2018, French tax law has seen a significant shift toward criminalisation, particularly with the introduction of the automatic referral system. When tax reassessments exceed EUR 100,000 and certain penalties are applied, the tax authorities must automatically refer these cases to the public prosecutor. This reform has fundamentally altered interactions with the FTA during audits, as the primary objective is now often to secure a waiver of penalties before the issuance of a tax collection notice.

As part of the fight against tax fraud, the Parquet national financier (PNF) plays a central role by conducting criminal investigations and searches in cases of suspected tax fraud.

Avoid being aggressive when dealing with the FTA, don’t wait until you are before a tax judge to discuss a new piece of evidence – and be patient!