Corporate tax audits: what you need to know to prepare for them with peace of mind

What is a corporate tax audit?

All businesses, whether companies or sole proprietorships, can be subject to a tax audit. This procedure allows the administration to verify the accuracy of tax returns and combat fraud. It involves examining a taxpayer’s accounting and tax declarations, sometimes over several years.

Far from being reserved for large companies, this verification can target any business, regardless of its industry or size. Understanding how a tax audit works is therefore essential to prepare for it with peace of mind.

Purpose and definition of a tax audit

In France, companies must regularly submit various tax returns to the administration: VAT, corporate income tax, personal income tax for sole proprietors, CVAE, etc. The French tax authority (DGFIP) is responsible for verifying the accuracy of this information.

To do so, it may initiate a tax audit to verify the accuracy of the returns and detect any irregularities. These audits help distinguish between unintentional errors and intentional fraud. They are a central tool in the fight against tax evasion and help maintain fair competition between businesses.

The different types of tax audits

There are several forms of corporate tax audits, which vary according to their purpose and how they are conducted.

Desk audit

This type of audit is conducted remotely by a tax officer, based on the documents already submitted in your tax returns. It takes place discreetly, without prior notice, and remains limited unless an anomaly is detected.

Comprehensive audit

This is the most thorough form of tax audit. It can be carried out in two ways:

• On-site: an inspector visits the company's premises to review accounting documents and speak with designated representatives.
• Remote: the audit is conducted digitally, via a secure platform through which the company submits the requested documents.

These two methods can be combined depending on the tax authority’s needs and the complexity of the case.

What is the statute of limitations for tax audits?

The tax statute of limitations, also known as the reassessment period, refers to the timeframe during which the tax authority can revisit a tax return to correct any errors or omissions. It is governed by Articles L168 to L189 of the French Tax Procedures Code.

This period varies depending on the type of tax:

• Corporate income tax and personal income tax: the administration can act until the end of the third year following the year of assessment (e.g., until December 31, 2025, for fiscal year 2022).
• VAT: same rule, with some specific exceptions.
• Local taxes: the time limits may be shorter or longer depending on the specific case.

This period can be extended in certain situations, especially for foreign activities or fraudulent behavior. In addition, companies benefiting from tax credits are often subject to more thorough audits, which may attract the attention of the tax authorities beyond standard timeframes.

How does a tax audit work in a company?

A tax audit is never a pleasant experience for a company, but knowing exactly how it unfolds helps in preparing properly. From receiving the notice to the final meeting, each stage follows a defined procedure, which we detail here.

1. Receiving the audit notice

The tax audit officially begins with the delivery of a notice of audit, sent by registered mail with acknowledgment of receipt. The administration must give at least two business days’ notice before starting operations.

This time should be used to organize your response: review your tax filings, gather the required supporting documents, consult a tax lawyer if necessary, and appoint a dedicated point of contact for the audit.

2. How the audit is conducted

The auditor may carry out the procedure either on your premises or remotely. In both cases, you will receive a list of required documents and a timeline for the exchanges. Thanks to digitalization, it is now common to submit files via a secure platform.

Throughout the process, you can interact with the auditor to clarify points, provide additional documents, or respond to interim observations.

3. Closing meeting

At the end of the review, a closing meeting is held. The auditor presents their findings and any irregularities. You then have the opportunity to provide your responses, comments, or objections. It is often advisable not to react immediately but to take time for a thorough review before taking a position.

Adjustment proposal: what happens after the audit?

If no discrepancies are found, the tax audit concludes without consequences. However, if the administration identifies irregularities, it will issue a proposal for adjustment.

Response time and options

This document outlines the proposed reassessments and any additional amounts owed. You then have a legal period of 30 days to submit your comments or accept the proposed adjustments. This period can be extended by 30 days upon request.

Two scenarios

• You accept: the administration will issue a collection notice specifying the amounts due (taxes, interest for late payment, possible penalties).
• You dispute: your observations will be reviewed by the auditing department. If no agreement is reached, a contradictory phase begins, which may lead to the involvement of the tax commission or the administrative judge.

In all cases, it is strongly recommended to be assisted by a tax lawyer in Marseille to defend your position and secure your exchanges with the administration.

Why are some companies audited?

A corporate tax audit is rarely completely random. While some audits are selected at random, most are triggered in response to red flags identified by the tax authorities. On average, a business may be audited every nine years, or even up to three years after liquidation.

Understanding the triggering criteria helps anticipate risks, adjust internal practices, and avoid a tax reassessment. The following sections outline the main situations likely to alert the French Tax Administration (DGFIP).

Inconsistencies detected through internal checks

An internal tax audit is initiated when the administration detects inconsistencies in the tax returns submitted by a company. This is not an on-site audit, but a review based on data already in the administration's possession.

This cross-analysis may reveal discrepancies between different tax declarations (VAT, corporate tax, income, etc.) or between tax and social data. If discrepancies are deemed significant, a more in-depth external audit may be initiated.

For instance, in a sole proprietorship, a mismatch between the declared profit and the household’s declared income can raise concerns. Likewise, an unexplained gap between turnover and VAT returns is a common risk factor.

Triggers for an external tax audit

An external audit occurs when the administration decides to conduct an in-depth review, often following a report or a red flag detected during internal analysis. This on-site audit allows the detailed examination of the company’s accounting and supporting documents.

Here are the main reasons that may lead to such an audit:

• Targeted campaigns by sector: The tax authorities may launch national or local campaigns focusing on sectors deemed high risk, such as hospitality, construction, or liberal professions.
• International transactions: Operations involving low-tax jurisdictions or complex cross-border flows may attract scrutiny.
• Stock issues: Abnormally low inventory turnover can suggest intentional undervaluation to reduce taxable income.
• Contagion effect: If a business partner (client, supplier) undergoes an adjustment, your company may be audited in turn.
• Whistleblowing: A report from an employee, competitor, or third party—especially if substantiated—can lead to an audit.
• Previous audit history: A past audit revealing irregularities may prompt a follow-up to ensure corrective actions have been taken.
• Sectoral divergences: Significant gaps between a company’s ratios and those of its sector (revenue, margins, VAT rates…) can trigger scrutiny.
• Declarative inconsistencies: Notable differences between declared revenue and VAT returns are a frequent cause for external audits.

Why anticipating a tax audit is essential

A tax audit can lead to significant financial consequences, especially if errors or omissions are identified. The tax authority will then issue a proposal for adjustment listing the irregularities found, which can result in a tax reassessment with late interest and even penalties.

Good preparation helps reduce these risks. It gives you time to correct certain issues beforehand, gather the necessary documentation, and above all, present a cooperative and organized approach to the administration. This anticipation often allows for reducing or even avoiding the scope of a reassessment.

Proper preparation: the key to facing an audit calmly

A tax audit naturally generates stress, particularly when technical or unexpected questions arise. However, your attitude plays a crucial role in how the verification unfolds. Demonstrating that you are prepared, composed, and transparent strengthens the dialogue with the inspector and can positively influence the outcome.

By anticipating the documents to be provided and possible questions, you approach the audit in a more relaxed and confident manner. This also helps avoid misunderstandings that could lead to unnecessary adjustments.

Anticipating questions helps avoid improvised answers

The preparation phase is the ideal time to carefully review the documents you’ll be asked to present. Put yourself in the inspector’s shoes: what anomalies might raise their attention? What questions might they ask? This mindset helps identify sensitive points to clarify or document in advance.

In collaboration with your accounting manager or chartered accountant, review key entries, unusual operations, or any missing documentation. If a supporting document is missing, prepare a credible and well-documented explanation. Anticipation prevents you from having to respond under pressure, which could lead to errors or misinterpretations.

Reviewing your accounts: a key strategy for reducing risks

Preparing for a tax audit is not limited to the few weeks before the verification. It’s an ongoing effort based on solid internal processes and consistent accounting discipline. Each annual closing is an opportunity to detect potential errors, validate the consistency of figures, and correct any issues before they are identified by the tax authority.

Using a review file, audits by statutory auditors, or internal reviews can be extremely helpful in this process. And if an irregularity is identified, the right to make a mistake now allows for corrections without penalties, provided the approach is voluntary and made in good faith. Taking the initiative shows your intent to comply and lowers the risk of reassessment.

Preventing major risks associated with tax audits

Serious preparation for a tax audit helps avoid the most severe consequences: accounting rejection, penalties for bad faith, or even prosecution in the case of serious misconduct. The goal is not just to respond to the auditor’s requests, but to demonstrate reliable and transparent management, capable of withstanding scrutiny.

By identifying sensitive areas in your accounting, updating your internal procedures, and thoroughly documenting your operations, you significantly reduce the risk of reassessment. Support from a tax law professional can also help secure the process and strengthen the credibility of your position.

Accounting rejection: a risk to avoid at all costs

Accounting rejection is one of the most serious sanctions during a tax audit. It occurs when the administration considers that the accounting records are unreliable due to serious and repeated irregularities or a lack of consistency with the company’s economic reality. The accounting is then deemed non-probative.

In such cases, the tax authority is allowed to reconstruct revenue and taxable profit using indirect evidence (bank flows, industry-standard margins, inventory, etc.). The consequences can be severe: increased reassessment, penalties for bad faith, and a loss of credibility with partners.

To avoid this scenario, it’s essential to ensure the quality, completeness, and traceability of your accounting entries. Regular internal audits or compliance reviews can help identify and address weak points in advance.

Deliberate breach and bad faith: increased penalties

When a tax reassessment is notified, it is systematically accompanied by late payment penalties. But if the administration identifies a deliberate breach or bad faith, heavier surcharges may apply: 40% for deliberate breach, 80% in case of fraudulent practices.

These situations occur when a company knowingly omits elements in its declarations, hides revenue, or applies a tax strategy without solid legal grounds. In some cases, it can even lead to criminal prosecution for tax fraud.

To mitigate risks, it is essential to quickly correct any anomalies identified during a previous audit, thoroughly document tax decisions, and have sensitive operations validated by a tax law professional.

How to properly prepare for a tax audit?

The success of a tax audit depends primarily on rigorous upstream preparation. From the moment the audit notice is received, every step must be anticipated methodically. Here are the key practices to adopt for handling the administration’s visit with confidence.

Daily accounting discipline

Preparing for a tax audit doesn’t happen at the last minute—it requires consistent, serious accounting throughout the year. Maintaining reliable, up-to-date, and compliant records is the first defense against reassessments.

A well-structured internal control system, properly filed supporting documents, a compliant and verified FEC, meticulous invoice management, and continuous documentation tracking are essential. The Administrative and Financial Director (DAF), or the accounting manager, plays a key role in organizing financial flows, anticipating risks, and ensuring every accounting entry can be justified if needed.

Analyze the audit notice upon receipt

Upon receiving the audit notice, it is vital to verify its formal validity. According to tax regulations, the notice must include several mandatory items (legal basis, years covered, type of audit, etc.). Missing information can render the procedure invalid.

Also check for the inclusion of the Taxpayer’s Rights and Obligations Charter, which is legally required. In case of doubt or irregularity, it is strongly advised to consult a tax lawyer to secure the procedure.

Should you seek help from a tax expert?

Considering external support is a strategic decision. Depending on your structure’s complexity, identified vulnerabilities, or the sensitivity of your sector, involving a tax lawyer or chartered accountant can make a significant difference.

This expert can intervene from the first visit and represent your company throughout the process, including during the final contradictory meeting. They will address the tax authority’s requests, anticipate red flags, and help you maintain a clear and secure stance.

Choosing the right contacts to deal with the tax authorities

The business owner is free to designate who will interact with the tax inspectors. They may choose to handle it personally, which requires full command of the technical issues discussed during the audit.

To ensure consistent communication, it is often better to designate a limited number of representatives. In addition to the owner, the Administrative and Financial Director (DAF) or the accounting manager are particularly suitable profiles.

The rest of the team can focus on collecting and preparing documents without directly interacting with inspectors. This setup helps limit inconsistent messaging and centralizes all information shared, both orally and in writing.

Prepare and deliver documents meticulously

Providing the documents requested by the tax authority must be done methodically. Only provide copies—never originals—and restrict submissions to what is strictly required. Avoid including extra information that could lead to further investigation.

For each fiscal year concerned, keep an identical copy of the documents provided. Also maintain a log of all exchanges, especially inspectors' remarks, which may be valuable in case of appeal or further request.

If certain documents are missing, don’t hesitate to request an extension. In the case of a proven loss (fire, water damage, relocation, etc.), adopt a transparent stance. The administration values good faith and your ability to document the incident—even partially.

Provide a suitable workspace for inspectors

The space where tax inspectors are welcomed plays an important role in how the audit unfolds. Avoid cramped, uncomfortable, or symbolically marginal locations (like a basement or storage room). Conversely, there is no need to block off your largest meeting room for the duration of their stay.

Choose a quiet, well-lit, accessible office located at a reasonable distance from the accounting department. This allows inspectors to work comfortably while maintaining some distance from staff members involved with the reviewed documents.

Maintain a professional and constructive attitude

The outcome of a tax audit also depends on the quality of communication with inspectors. It is crucial to remain polite, available, and cooperative throughout the process, including during email exchanges or on online platforms.

Keep in mind that inspectors are not there to punish indiscriminately, but to verify compliance. A climate of trust and mutual respect makes interactions easier and may result in a more lenient view of any irregularities. Even in case of disagreement, always favor a calm and well-reasoned tone.

Conclusion: Tax audits require preparation

A corporate tax audit is never trivial, but it shouldn’t cause panic either. By anticipating audits, organizing your accounting, and adopting a disciplined approach, it is entirely possible to reduce the risk of reassessment.

Remember: transparency, consistency, and open communication are your best allies when facing the tax authorities. In case of doubt or complex issues, support from a tax lawyer remains the best guarantee to defend your interests with confidence.

The Sion Avocat firm supports you at every stage of a tax audit, from preparation to responding to a reassessment proposal. Contact us for tailored and secure support.

 

FAQ – Can a tax audit really be avoided?

Can a tax audit really be avoided entirely?

No, there is no way to fully exclude the risk of a tax audit. Some audits are random; others result from targeted national campaigns. However, proper tax management helps reduce the likelihood of being selected.

How can you reduce the risk of a tax audit?

The best way to limit risk is to adopt best practices: reliable accounting, timely tax filings, consistent financial data, no repeated irregularities… and guidance from a tax law professional.

Are very small businesses safe from audits?

No. Business size is not a decisive factor. The tax authorities focus on risk signals: anomalies, inconsistencies, sensitive sectors, etc. A micro-business or self-employed professional can absolutely be audited.

What types of errors can unintentionally trigger an audit?

Even without fraud, some mistakes can attract attention: incomplete tax filings, mismatches between VAT and revenue, poorly structured accounting files (FEC), or operating in sectors frequently audited.

What role does a tax lawyer play in prevention?

A tax lawyer helps identify risk areas, secure sensitive transactions, and anticipate audits. They play a crucial preventive role by helping you adopt a compliant and well-documented strategy.

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