Tax Investigation: Procedural Irregularities
15th May 2025
A couple obtain a reprieve on a tax investigation due to procedural non-compliance
We have reported previously on the procedures in place in France for tax inspections of individuals.
Although each year many tens of thousands of tax returns will be subject to a fairly routine document check, only a few thousand will face a full investigation, called a L’examen contradictoire de la situation fiscale personnelle (ESFP).
In a case that was recently heard in the French courts, a couple were under an investigation of their income for the 3 years 2017-2019.
As a result of the investigation, the tax authority imposed additional taxes, social levies and penalties of €96,532 for 2017, €94,677 for 2018 and €162,409 in respect of 2019, a total of €353,618.
The couple challenged the assessment on several grounds, notably that the tax authority could not prove having sent the notification of the investigation, and that their statement of the income of the taxpayer was inaccurate.
There are strict procedures in place concerning ESFP investigations. The process starts with a formal request from the tax authority for the taxpayer to provide an explanation of their circumstances, and a clarification of their income and a justification of their expenses. The taxpayer has at least 2 months to respond to such a demand. If they fail to do so, or their response is inadequate, a further demand is made to which the taxpayer must respond within 30 days. If they fail to do so, the tax authority can impose the taxes, together with penalties.
In court, it was found that although the tax authority produced a letter dated 24th February 2021 sent to the taxpayer’s address, requesting clarification and justification, the acknowledgement of receipt of the letter was unsigned.
As a result, the court judged that: “Consequently, the tax authority do not provide the proof, which is required of them, that they have duly notified the request for clarification provided for in Article L. 16 of the Book of Tax Procedures. Consequently, the plea alleging the irregularity of the procedure on which the contested taxes are based must be upheld.”
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