TAX AUDIT IN FRANCE: KEYS TO AVOID ISSUES

Posted By Antoine Gouin on Mai 15, 2015 in International tax (EN)


Date de publication : 15-05-2015

o prevent any issues with the French Tax Authorities in the case of a tax audit of your French company/subsidiary, find below explanations concerning electronic invoicing that shall respect French accounting requirements (I) and files communications with FTA (II).

I – Electronic invoicing

As from January 1st, 2014, French companies may use electronic invoices but they must use an adequate system (A) that would respect French accounting requirements (B).

A. Electronic invoicing system

Since the accounting has been done through an electronic system, invoices and accounting documents mus be provided to the FTA using a digital copy (article L.47 A of the French Tax Procedure Code).

According to the French Tax Code, companies are able to provide to their customers with electronic invoices. However, the invoice recipient has to agree with this invoicing process.

Hopefully, the customer’s agreement could be collected by different ways :

  • written in a contract;
  • with the payment and/or treatment of the electronic invoice by the customer;
  • by granting enough time to the recipient letting him the opportunity to ask for a paper copy of the electronic invoice.

These wide conditions allow an exclusive use of an electronic invoicing system, even if there is no pre-agreement between the company and the customer.

An invoice created on paper and the scanned is not considered as an electronic invoice. Furthermore, an electronic invoice printed and sent/received by post is not considered as an electronic invoice.

However, till December 31st, 2014, a paper invoice scanned and then sent through email or secured network was considered as an electronic invoice. Thus only if the scanned invoice is secured with an electronic signature and the sender has to keep both paper and electronic invoice.

B. French accounting requirements

As from January 1st, 2014, companies that use an electronic accounting system have to be able to provide an  electronic file (« fichier d’écritures comptables ») which respects the French accounting standards: French Gaap. This file must be provided in French.

In France, accounting rules applicable to financial statements are contained in two sources:

  • The Commercial Co de (art. L.123 -12 to L.123-28), with its regulatory part corresponding (including) the integration of the decree of November 29, 1983 by decree n° 2007 -431 of March 25, 2007 and the PCG.
  • The general and sectorial accounting prescripts issued by the Autorité des Normes Comptables, i.e. the French authority for accounting standards (ANC).

These accounting principles are:

  • Continuity of business or operations principle («Principe de continuité d’activité ou d’exploitation»);
  • Specialization of financial years principle (or autonomy or independence of financial years («Principe de spécialisation des exercices (ou d’autonomie ou d’indépendance des exercices »);
  • Nominalism principle (or historical costs or stability of the monetary unit) («Principe du nominalisme (ou des coûts historiques ou de stabilité de l’unité monétaire »);
  • Caution principle («Principe de prudence »);
  • Fixity principle (or permanence of methods used) (« Principe de fixité (ou de permanence des méthodes) »);
  • Relative importance principle («Principe d’importance relative »);
  • Non-compensation principle («Principe de non -compensation»);
  • Good information principle («Principe de bonne information »);
  • Reality over appearance principle («Principe de prééminence d e la réalité sur l’apparence »);
  • Intangibility of the opening balance sheet principle (« Principe d’intangibilité du bilan d ‘ouverture »)

According to the Commercial Code, accounting files have to be kept for at least 10 years.
Regarding the French Tax Procedure Code, accounting files have to be kept by the company for at least 6 years. However, it is recommended to keep all of the files during 10 years as a tax audit could challenge some accounting records up to 10 years (e.g. lost carry-forward, amortizations).

However, the electronic invoicing system must be able to extract data from the software. These date must be exploitable by the FTA.

II – Electronic files communication with the French Tax Authorities

With regard to the French Tax Procedure Code (« Livre des procédures fiscales »), from January 1st, 2014, companies using an electronic accounting system that receive a notice of assessment for a tax audit have to provide the FTA with an electronic file (« fichier d’écritures comptables »).

The communication of this electronic file can be done using different supports such as CDs, DVDs, USB keys, external hard drives, FTA servers… This electronic file must be provided at the first intervention of tax inspectors in the company. The format used shall be either flat files (sequential organization and structure zoned) or structured files (encoded in XML, following the structure of XSD).

According to the French Tax Code, companies that do not provide the FTA with an electronic file using above requirements are subject to a fine of EUR 1.500,00 per FY audited and another fine amounting to 5‰ of the revised turnover per FY audited or 5‰ of the former turnover per FY audited if there is no revision by the FTA.

Finally, regarding my experience, there is no duty to provide the FTA with original documents. Indeed, at the end of an assessment notice delivered by the FTA, the following sentence is mentioned: « Provided documents shall be copies. The company shall keep originals ». In this respect, the company does not have to keep original or copy of accounting documents in France.

However, the company shall ensure that electronic files are accessible and available on-line by the FTA in case of a tax audit. Same requirement has to be respected for electronic invoices (article L.102 C of the French Tax Procedure Code). Nevertheless, companies are not allowed to keep invoicing in a country with which France has not signed an agreement of mutual assistance for recovery or tax claims.

In the event of a tax audit, the FTA shall be provided with an online access to the electronic files kept abroad and shall be able to download and use it.

The storage of original invoices must be in France, in another EU State, or in a State which has concluded with France a convention of mutual assistance related to debt and tax recovery pursuant to EU Directive dated March 16th 2010.

Every copy of documents used by the FTA will be given back to the company at the end of the tax audit. FTA are not allowed to keep any copy.

A company can established its accounting services abroad if an electronic system is used and electronic files are under appropriate format. Furthermore, the electronic file (« fichier d’écritures comptables ») must be provided to the tax inspectors during their first intervention in the French company.

Read this article in French

Antoine Gouin

Antoine est avocat fiscaliste exerçant au sein d’un cabinet d’affaires. En plus des besoins attachés à la fiscalité des entreprises, Antoine maîtrise les problématiques de financements intragroupe à l’international mais également la fiscalité des particuliers comme l’IFI par exemple.

Antoine est passionné d’astronomie et boit son café comme George Clooney : ristretto sans sucre. Profil LinkedIn
Antoine Gouin

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