What is a tax adjustment?

Definition of tax adjustment

If you're wondering what a tax adjustment actually is, here's a definition. But first, let's get back to the basics of our tax system. Taxes are, for the most part, collected on the basis of a declaration made by the taxpayer in person, and therefore under his or her own responsibility. This means that the tax declaration system is governed by the trust placed in the taxpayer by the tax authorities.

However, the administration carries out tax audits to check that returns are sincere and, above all, complete, and that no income has been omitted. As most salaried income is deducted at source, companies are much more likely to be subject to tax reassessments than private individuals.

Following a tax audit, if inaccuracies, shortcomings or, more seriously, concealments are found in the tax returns, the tax authorities may initiate a tax reassessment procedure aimed at correcting the initial tax return and claiming payment of the tax due corresponding to this rectification.

In the case of a company, the tax reassessment will take place following an audit of the company's accounts, if these show irregularities or if the tax authorities have doubts about the sincerity and bona fides of the declarations, despite the accounts appearing to be correct.

 

It should be noted that the procedure applies to income tax, property wealth tax and, in the case of a company tax adjustment, corporation tax. However, the procedure does not apply to local taxes, indirect taxes or stamp duties.

The difference between tax adjustments and tax audits

You'll have understood this by reading the definition of tax reassessment given by Cabinet Sion Avocat above, but to clarify, here are the differences between tax reassessment and tax audit.

A tax audit is a procedure that follows a number of stages. First of all, information is sent to the company, and then an appointment is made with the auditor so that he can carry out an audit of the accounts, either directly on the company's premises, or remotely. With access to all the documents needed to assess the accuracy of the company's accounts, the auditor will issue an opinion, which will be presented at a summary meeting.

Two options are then available: either no rectification, or a proposed rectification. It is in this second case that we speak of a tax adjustment!

How long does it take?

It is important to know that the tax authorities have three years in which to make a tax adjustment. This means that, for corporate income tax paid in 2020, the tax authorities will have until December 31, 2023 to contest the amount of tax due.

It should be noted that this period, known as the "droit de reprise", can be interrupted if a rectification proposal, and therefore a tax adjustment, is pronounced by the tax authorities. In this case, a new period of 3 years begins from the start of the procedure, which Cabinet Sion Avocat will explain below.

Tax adjustment procedure

Wondering how a tax reassessment works? We have the answer.

If the conclusion of the tax audit is that there are errors or omissions in the taxpayer's or company's return, the tax authorities will initiate a tax adjustment procedure. The procedure requires the tax authorities to send, by registered letter with acknowledgement of receipt, a notification of adjustment, which includes:

• Indication of the amount of the adjustment, including taxes due and related penalties
• A statement of the reasons for the adjustment, i.e., the deficiencies that have triggered the adjustment procedure. It should be noted that, if no reasons are given, the procedure may be annulled.

On receipt of the registered letter, the taxpayer has 30 days to respond to the tax authorities:

• Negotiate the rectification proposal
• Refuse it
• Accept it in full
• Accept it in part

If you're wondering how to dispute a tax reassessment, you can do so by registered letter with acknowledgement of receipt, or directly from your online account at "impots.gouv.fr" (For France).

 

If the taxpayer or company refuses the tax adjustment, the tax authorities must respond by refusing, modifying or accepting their proposal.

If there is still disagreement between the parties, the tax authorities or the taxpayer may refer the matter to the relevant departmental commission.

If you're wondering how long you have to pay your dues, it's important to note that, in theory, you must pay before contesting. However, it is possible to include a request for deferment of payment in the contentious claim, which will allow you to pay only after the tax authorities have responded to your claim, and not before.

The consequences of a tax reassessment

We're now going to talk about the consequences of a tax adjustment, in other words, how much does a tax adjustment cost?

It should be noted that, depending on the errors or omissions in the tax return, the financial consequences will not be identical. The company may be required to pay additional taxes, and sometimes penalties or fines.

Here are a few examples:

• Interest on arrears: a fairly standard charge, common to other fields, the tax authorities may demand interest on late tax returns.
• Penalties linked to the accounting file (FEC): if some (or all) documents do not comply with accounting standards, or if some documents are not accessible, a penalty may be applied.
• Penalties: in the event of proven bad faith, for example if fraudulent maneuvers have been detected or if you oppose the tax audit, penalties may apply.

Generally speaking, apart from interest and penalties, in the event of a tax reassessment, the tax authorities will adjust the tax base to calculate the amount of tax finally due.

If it is established that the company or taxpayer is acting in good faith, the additional tax calculated will be due, together with late payment penalties which are generally 0.20% per month of delay, divided by two if the regularization is spontaneous.

If, on the other hand, the taxpayer or company is acting in bad faith, the tax authorities must demonstrate that the omission, inaccuracy or error was made with full knowledge of the facts. If this is proven, penalties will be applied:

• In the case of deliberate misconduct, the tax due is increased by 40%.
• If fraudulent maneuvers have been detected, the increase can rise to 80%.

It should be noted that, for the tax authorities, a fraudulent maneuver is a "procedure whose effect is either to make taxable material disappear or to reduce it, or to obtain unjustified reimbursements from the State, when these procedures cannot be considered as excusable errors or involuntary omissions, but are, on the contrary, the result of conscious and deliberate acts intended to give the appearance of sincerity to declarations which are in reality inaccurate on the part of their authors and imply the intention to evade all or part of the tax".

If you are concerned by a tax reassessment, whether as an individual or a company director, be very careful. The tax authorities can make mistakes during the procedure, which we commonly refer to as formal defects, which can be used to your advantage to invalidate part, or even all, of the tax reassessment, as has already happened to some of our clients!

Hence the importance of contacting our firm as soon as you receive the first letter, because the sooner we act together, the greater our chances of success in reducing or even invalidating the procedure.

So, if you're looking for a tax adjustment lawyer, don't hesitate to contact Cabinet Sion Avocat, a tax lawyer in Marseille (and online!) specializing in tax optimization within the law, who will be able to help and support you!

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