The computerised-accounting tax audit procedure in France

I. Concept and Initiation of Processing

A. What Data Processing Is and Is Not

Data processing is not defined by legislation, but can be characterized by its function: it aims to transform or recompose data under scrutiny, by seeking to reprocess or link elementary data (originally captured, at the transaction level) into usable aggregated data (reconstructed revenue, theoretical margin, file cross-referencing).

For example, this involves reconstructing:

• monthly revenue from the list of transactions,
• recalculating territoriality rules,
• calculating gross margin,
• verifying the calculation of provisions for inventory depreciation,
• ...

It differs from simple consultation and elementary operations that the tax auditor can perform on the FEC or on data obtained without specific formalities (sorting, classification, reconciliation calculations), which fall under Article L. 47 A (I) and not (II) (Tax procedure book, art. L. 13 et L. 47 A ; BOFiP, BOI-CF-IOR-60-40-30).

Note. The distinction has direct procedural implications: classification as processing triggers the safeguards of (II) (prior information, right of option).
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The administrative guidance also clarifies that the generation or printing on paper of reports produced by the system does not constitute processing (BOFiP, BOI-CF-IOR-60-40-30).
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Similarly, the Administrative Court of Appeal of Marseille ruled that the mere request to copy files into a dedicated directory is not processing and does not trigger the obligation for prior information (CAA Marseille, 19 oct. 2017, n° 16MA03865).

B. Initiation of the Procedure

Once a processing operation is contemplated, the auditor must inform the taxpayer in writing, no later than when the decision is made to proceed with it.

This notification triggers the entire process: it grants the right to choose an option and determines the regularity of the procedure. Its absence or imprecision affects the validity of any resulting tax adjustments (Tax procedure book, art. L. 47 A, II).

II. Prior Information: A Fundamental Safeguard

The Council of State has deemed the precision of this information to be a fundamental safeguard.

The auditor must specify, in writing and with sufficient precision, the nature of the desired investigations (i.e., the data on which the research will focus and its purpose), to enable the taxpayer to make an informed choice among the three options.

As early as 2017, the High Court ruled against information that merely referred to "revenue control" and, broadly, "cash register data" and "general accounting," deeming it too imprecise to guide the taxpayer's choice (CE, 9e-10e ch., 18 Jan. 2017, no. 386458, Besnier, and no. 386459, SARL La Carlotta).

The Dual Nature of Information Obligations. In two rulings dated March 7, 2019 (CE, 8e-3e ch., no. 416341, Selas Pharmacie Caluire 2, and no. 420428, Eurl Paget), the Council of State distinguished two obligations that should not be confused:

• the first (information on the nature of the investigations) is preliminary and required regardless of the option considered, as it ensures the effectiveness of the choice itself.
• The second (the technical description of the work to be performed) is only required if the taxpayer subsequently decides to carry out all or part of the processing himself (option b).

The order is logical: first, the purpose is communicated to enable the choice; then, the work is detailed to allow the taxpayer to perform it.

Practical Tip. The defense should be prepared as soon as the processing request is received.

The taxpayer should verify that the letter precisely identifies the targeted data and the purpose of the investigations; failing this, they can usefully request these clarifications in writing before exercising their option.

Retaining the request, the response, and the chronology of exchanges is crucial in the event of a dispute regarding the regularity of the procedure.

III. The Taxpayer's Right to Choose an Option

Once informed, the taxpayer (and only the taxpayer) chooses the practical method for carrying out the processing, from among three options listed in Article L. 47 A, II (Tax procedure book, art. L. 47 A, II).

Option a — Using the company's equipment: The auditor performs all or part of the processing himself using the equipment utilized by the company. The taxpayer is informed of the names and administrative addresses of the agents supervising these operations.

Option b — By the taxpayer: The taxpayer handles all or part of the processing; the administration then specifies to them, in writing, the technical description of the work to be carried out as well as the deadline granted for its completion.

Option c — Off-site, using file copies: The taxpayer requests that the audit not be performed on their equipment and provides a copy of the files, on media complying with standards set by decree. The administration performs the processing off-site and can use the results against the taxpayer, provided it destroys the copies before collection.

The choice is formalized in writing and must, in principle, be made within fifteen days of the request (Tax procedure book, art. L. 47 A, II).

The date of the response is not without consequence: it marks the starting point of operations according to the chosen option and sets the framework within which, if applicable, a refusal or blockage will be assessed.

Reversibility of the choice within the deadline: The initial choice is not fixed. The Council of State ruled that a taxpayer who opted to perform the processing themselves (option b) retains the right to change their option until the expiration of the deadline set by the administration for carrying out these processes (CE, 13 March 2020, no. 421725, Sté Pharmacie Centrale de la Gare).

This reversibility enhances the practical application of the option right and constitutes a valuable safety valve when the scope of the work proves, in practice, disproportionate for the company.

Complementary IT resources (option a): When the taxpayer has chosen option (a) but their equipment does not allow for the necessary processing to be carried out under normal conditions, the auditor may use additional computing resources with the taxpayer's agreement (CE, 23 Nov. 2020, no. 427689).

This option facilitates the continuation of the audit without unilaterally imposing external tools on the taxpayer. A refusal, however, is not without consequence.

IV. From Impeding to Obstructing an Audit

Article L. 74, second paragraph, of the Tax procedure book provides for ex officio assessment of the tax base in case of obstruction to the implementation of the audit of computerized accounts according to the terms of Article L. 47 A, when this audit proves, in fact, impossible.

The Council of State specified that a taxpayer who, having chosen option (a), maintains this choice even though their equipment does not allow for normal processing, refuses additional computing resources, and refrains from abandoning their option in favor of the other two (despite being informed of this possibility), must be considered as obstructing the implementation of the audit (CE, 9th-10th Chamber, 23 Nov. 2020, no. 427689).

The situation would be different if the processing proposed by the administration is, in principle, not feasible (for example, because it is not possible to reconcile certain data with each other given the data available in the system).

Obstruction leads to ex officio assessment and application of a 100% surcharge (Tax procedure book, art. L. 74, 2nd para.; FTC (French Tax Code), art. 1732).

Perspective. The reclassification of a legal option as obstruction of audit, which shifts the taxpayer from no penalty to a 100% surcharge, in our opinion, calls for a measured interpretation.

Case law rightly requires prior taxpayer information about the possibility of changing options and the technical impasse identified: this prerequisite seems to us a fundamental safeguard, which should not be reduced to a mere formality.

A good faith technical disagreement regarding the feasibility of the processing should not, on its own, constitute obstruction.

V. Completion: Return, Adversarial Process, and Destruction of Files

Subsequently, and to enable the taxpayer to effectively challenge any adjustments, the administration must have communicated to them (in digital or non-digital form, at their discretion) the results of the computer processing that led to the adjustments, no later than when the notice of proposed adjustment, as provided for in Article L. 57 of the Tax procedure book, is sent.

Administrative doctrine restricts the digital communication of the processing itself, when carried out off-site from the company's equipment, i.e., option (c).

The administration destroys, before collection, the copies of the files that were submitted to it (Tax procedure book, art. L. 47 A, II in fine; BOFiP, BOI-CF-IOR-60-40-30).

Under Article L. 57 of the Tax procedure book, the notice of proposed adjustment must specify the files used, the nature of the processing operations performed, and the methods for determining the elements used to calculate the adjustments.

However, in the case of Le Lagon Bleu (CE, 8e-3e ch., 4 May 2018, n° 410950), the Council of State adopted a restrictive interpretation: the administration is not required to disclose either the algorithms, software, or hardware used, nor all the results of the processing performed, but only those results actually used to justify the adjustments.

Viewpoint. This exemption from disclosing algorithms appears to us to be in tension with the effectiveness of the adversarial principle.

When adjustments result from the reprocessing of raw cash register data using tools that the taxpayer does not possess, the inability to access the calculation logic practically deprives them of the means to reproduce (and thus effectively challenge) the disputed result.

This solution is understandable due to the concern for preserving the department's methods and the fact that there are no adjustments directly linked to the result. However, in some cases, the method could benefit the taxpayer or even allow for the construction of a defense for another period.

VI. Specific Penalties and Coordination with the Accounting Review

Failure to present the documents, data, and processing necessary for the implementation of the investigations under Article L. 47 A, II is penalized by Article 1729 H of the FTC: a fine of €5,000 or, in the event of reassessment and if this amount is higher, a 10% surcharge on the taxes due.

The same penalty applies to the failure to provide copies of the files within the deadlines and according to the standards specified in II (b) and (c) (FTC, art. 1729 H). This fine differs from obstruction of an audit: it penalizes a breach of a specific obligation, whereas obstruction penalizes the impossibility of the audit as a whole.

The processing procedure is not specific to on-site audits.

In the context of the accounting review, conducted remotely based on the transmitted FEC (accounting entry file), equivalent investigations are provided for by Article L. 47 AB of the LPF, to which Article 1729 H of the FTC also refers for the penalty for failure to present (LPF, art. L. 47 AB; FTC, art. 1729 H).

The safeguards established by case law based on Article L. 47 A, II (precision of information, right to choose, return of results) are intended to inform, by analogy, the implementation of this remote mechanism.

Practical Advice. Three key actions structure an effective defense:
1. demand a specific processing request before making a choice;
2. choose the option based on the company's actual capabilities, bearing in mind the ability to change it within the timeframe;
3. and, upon receipt of the rectification proposal, verify that the results of the processing that formed the basis of the adjustments have been communicated and are reproducible from the information provided.

In practice, we always recommend choosing option b if possible, with the support of an advisor to carry out the processing.

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