ESSOC Law: the Tax Compliance Audit (“TCA”) is launched – Decree No. 2021-25 and Ministerial Order CCPE2035569A on January 13th, 2021
Announced in 2018 as part of the Law for a State at the service of a trustworthy society (known as the “Essoc Law”), the TCA enables companies to benefit from a contractual service that strengthens their legal and tax security by auditing and approving their application of certain tax rules. The TCA applies to fiscal years ending on or after December 31st, 2020 and is open to all individuals or legal entities engaged in a business, either individually or as a company, regardless of their tax regime and turnover.
This new tax audit process is being viewed as a mechanism for taxpayers to use in addressing and correcting their mistakes while at the same time, allowing the tax authorities to improve the efficiency of tax audits (in terms of duration and frequency) and to allow an enhanced focus on addressing tax fraud.
The main characteristics of this new tax compliance audit process are as follows:
- Tax compliance audits will be conducted by private-sector actors—such as tax lawyers, statutory auditors, chartered accountants, etc.
- Tax compliance audits will be open to all companies, regardless of their business activities or size.
- The scope of tax compliance audits will be limited to 10 topics that are connected to the accounting treatments, such as conformity and quality of the electronic accounting files, cash-register software, archiving requirements, corporate income tax and VAT regimes, amortization rules, accrued liabilities, tax deductibility of certain exceptional charges, and VAT payment rules.
- These tax compliance audits will not be a “global” tax audit. In other words, they will not cover complex transactions or certain specific tax treatments such as transfer pricing policy, corporate restructurings, interest deductibility, and complex VAT rules. Rather, the tax compliance audits will concern topics or areas that typically are reviewed during the scope of most tax audits by tax inspectors and for which tax inspectors end up devoting a great deal of their audit resources and time.
- At the end of the tax compliance audit, the tax auditor will issue a compliance report that will need to follow a specific reporting scheme (using a template about the compliance report and e-filing).
The new tax compliance audit process will not prevent the French tax authorities from conducting further tax audits or tax reassessments of the subject taxpayers. Nevertheless, if an area has been addressed and its treatment confirmed during the scope of the tax compliance audit process, no penalty or interest for late payment of tax can be assessed by the French tax authorities (assuming that the taxpayer showed good faith and this is not challenged).
This new tax compliance audit process—in conjunction with the tax partnership (partenariat fiscal) and the tax regularization desk (for income from foreign accounts)—is intended to be an opportunity that increases tax certainty for taxpayers.
