What is the room for error in tax matters?

The room for error and the 2018 ESSOC law

Exploring the concept of the room for error in tax matters requires an initial dive into the ESSOC law, enacted on 10 August 2018. Prior to the advent of this law, a taxpayer who identified an error in their return, but on their own initiative corrected it, was not necessarily subject to surcharges or fines (although this remained a possibility). However, significant late payment penalties were imposed to compensate the tax authorities for the damage caused by late payment.

The ESSOC Act introduced a right to regularisation for taxpayers in the event of an error, whether in the form of an inaccuracy, omission or shortfall in the return used to calculate the tax due.

Thanks to this law, taxpayers will no longer be required to pay any surcharges or fines arising from these amended returns. Late payment interest is still applicable, but the 2018 ESSOC Act has provided for reductions in this regard.However, you will be forced to regularise your situation by making a full payment in two cases:

• If you have failed to pay a tax, you will have to pay the full amount.
• If you have partially paid tax, you will have to pay the remaining amount.

This right to error is not exclusive to any particular group of taxpayers, since it applies to both individuals and businesses. As far as businesses are concerned, all corporate forms, whether SARL, SAS, SA or other, can benefit from this right, regardless of their size.

 

The scope of the right to error

It is important to note that the right to error does not cover all situations, as it applies exclusively to taxpayers who have made an error in good faith, i.e. unintentionally. The presumption of good faith works in your favour, requiring the tax authorities to prove any deliberate attempt at tax evasion on your part before the right to error can be applied.Consequently, anyone who has deliberately sought to evade their tax obligations will not be able to benefit from the right to error. Furthermore, this right does not extend to the following cases:

• Failures or delays in submitting returns.
• Defaults or delays in payment.

Thus, the right to error is a measure designed to help taxpayers acting in good faith to correct their tax errors, but it obviously does not apply to those who deliberately attempt to defraud the tax system.

 

Regularisation of the room for error

When you become aware of your error, as you have understood, you have the opportunity to correct your situation. There are two ways of doing this:

• Before the start of a tax audit.
• While you are being audited.

So how do you invoke the right to make a mistake?

 

Rectification before a tax audit

If you discover that you have made a mistake, it is essential to act quickly by filing an amended return with the tax authorities. This action, also known as spontaneous regularisation, demonstrates your good faith towards the tax authorities. As a reward for this proactive action, you will benefit from a 50% reduction in the rate of late payment interest, which will apply regardless of the tax concerned.

However, certain conditions must be met:

• The adjustment must be made spontaneously as soon as you identify your error, before any formal notice, accounting audit notice or request for clarification from the tax authorities. Even if you receive a notice from the tax authorities concerning an act other than the one in respect of which you identified your error, the rectifying declaration is still considered to be spontaneous.
• You must be acting in good faith, which means that your error must not have been deliberate. Errors or omissions are presumed to be involuntary, relieving you of the obligation to prove your good faith to the authorities. If the authorities suspect bad faith, they will have to prove that the irregularities were committed intentionally by you in order to impose the surcharges.
• You must pay the sums due as soon as the authorities ask you to, thereby topping up what you have already paid. This is equivalent to paying what you should have paid initially but for the error. Once you have paid these amounts due, you will benefit from the reduction in late payment interest.

When these conditions are met, and subject to acceptance by the tax authorities, you will automatically obtain a reduction of half the amount of late payment interest without any further action.

If you find it difficult to pay this additional tax in a single instalment, you can ask the tax authorities to defer payment when you file your amending tax return. However, it is essential to pay on time.
And in the event of a tax audit, how do you assert your right to make a mistake?

 

Rectification during a tax audit

When you are the subject of a tax audit and you identify an error, article L.62 of the Book of Tax Procedures provides for the possibility of benefiting from a reduction in the rate of late payment interest (30% instead of 50% for spontaneous regularisation), under the same conditions as those set out above (voluntary rectification, good faith and payment of tax due). A request for a settlement plan may also be considered in this context.

This procedure may concern all the taxes and periods covered by the audit, as well as errors, inaccuracies, omissions or deficiencies relating to taxes or periods other than those covered by the tax audit.

 

The right to error, professionals and businesses

Professionals, such as sole traders or companies, can also take advantage of this procedure to rectify errors, for example in their URSSAF returns, provided they are acting in good faith. Following this rectification procedure, the missing contributions must be paid.

In addition, an employer who makes an error in the declaration of social security contributions may also request the benefit of the right to error, again under the same conditions. It is important to note that penalties are not applied in the following situations:

When the corrected declaration and payment of the adjustment are sent before the first due date following the initial declaration.
If the amount of the increases and penalties that should have been applied is less than the monthly Social Security ceiling (PMSS: €3,864 as at 1 January 2024).

In the event of late payment of contributions, late payment surcharges are not due if :

• The contributor pays the contributions within a maximum of 30 days or sets up a payment plan with URSSAF.
• The contributor has not been in arrears over the previous 24 months.
• The amount of potential increases does not exceed the PMSS.

However, it is essential to ensure that you do not find yourself in situations where the right to error cannot be applied, as in the case of failure to declare employees, repeated errors in the amount of remuneration declared, or when declarations are not filed by the prescribed deadlines.

 

Late payment penalties

The ESSOC Act has not entirely eliminated late payment interest, although the legislator has considerably improved the system to make it more incentive-based. Consequently, even if a taxpayer acts in good faith by rectifying an error, the tax authorities retain the right to charge interest to compensate for the prejudice caused by the late payment. It is essential to note that interest rates may vary depending on whether regularisation takes place before or during an audit.

In the first scenario, it should be noted that :

• For interest accrued up to 31 December 2017, the applicable rate is 0.20%.
• For interest accrued from 1 January 2018, the applicable rate is 0.10%, i.e. a reduction of 50%.

In the event of an ongoing audit, the reduction in the rate of late payment interest is limited to 30%.

 

Key points to bear in mind about the right to error

It is essential to keep the following points in mind to avoid being denied the right to tax law error:

• Complete all your tax returns honestly and in good faith.
• If you make a mistake, report it immediately to the tax authorities.
• Submit an amended return to correct the error.
• Make sure you pay any missing tax.
• If necessary, ask for payments to be staggered.
• Never try to conceal an error, as transparency is crucial in this process.

Why should I be assisted by a lawyer in exercising my right to an error?

If you make a mistake in your tax returns, you may be entitled to a rectification, provided that you follow the correct procedures when dealing with the authorities. A lawyer specialising in administrative law, such as a tax lawyer, can play an essential role in this process, accompanying you throughout the procedures and acting as an intermediary with the specialist tax departments. What's more, a lawyer is the professional best qualified to clarify your mistakes and guide you through the sometimes complex returns.

So now you have all the information you need to better understand the right to tax error. If you have any further questions, or if you are considering tax optimisation and are worried about making a mistake, don't hesitate to contact Cabinet Sion Avocat!

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