Tax Audit Alert: Why French Authorities Are Watching International Business Structures

Tax Audit Alert: Why French Authorities Are Watching International Business Structures"

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Understanding the French Tax Audit: What Triggers an Inspection?

Tax audits in France can be a source of concern for both individuals and businesses. Understanding what triggers an inspection is essential to avoiding costly errors and reducing your exposure to the French tax authorities. In this article, we explain the main risk factors, red flags, and common causes that often lead to a tax audit — especially for companies with international operations.

What Is a Tax Audit in France?

A tax audit (contrôle fiscal) is an official procedure whereby the French tax administration (Direction Générale des Finances Publiques – DGFiP) verifies the accuracy and completeness of your tax filings. This process may apply to individuals, businesses, and non-residents with income or assets in France.

There are two main types:

· Desk audit (vérification sur pièces): Conducted remotely based on documents submitted with your declarations.

· On-site audit (vérification de comptabilité / examen de situation fiscale personnelle): Carried out at your premises or through direct meetings and inspections.

What Triggers a Tax Audit in France?

The DGFiP uses increasingly sophisticated data analytics and international reporting tools to identify suspicious cases. Below are the most frequent triggers:

1. Discrepancies or Omissions in Tax Declarations

· Declaring unusually low income relative to declared assets or visible lifestyle.

· Inconsistencies between income tax, VAT, and corporate tax declarations.

· Failure to declare foreign bank accounts, assets, or trusts (under Article 1649 A of the French Tax Code).

2. International Exposure and Cross-Border Transactions

Companies involved in international trade or cross-border services are under increased surveillance. The French tax authorities pay particular attention to:

· Transfer pricing arrangements between related entities.

· Undeclared permanent establishments abroad.

· Digital and service-based companies invoicing foreign clients without clear substance.

· Use of tax havens or low-tax jurisdictions for restructuring or invoicing purposes.

Even service companies — such as consultants, tech firms, or legal and financial advisory businesses — are regularly audited when they operate in multiple jurisdictions or work with foreign clients. The authorities aim to detect base erosion, profit shifting, or non-declared foreign income.

3. High-Risk Business Sectors

The DGFiP targets sectors with higher statistical rates of irregularities, including:

· Construction and real estate

· Hospitality and catering

· Automotive trade

· Cash-intensive businesses

· Service companies with international clientele

4. Abnormal Financial Ratios and Claims

· Disproportionate margins compared to industry standards.

· Large or recurring VAT refund requests.

· Significant intragroup charges with no clear business justification.

5. Frequent Changes in Legal Structure or Jurisdiction

· Switching from one legal form to another (e.g., from SARL to SAS, or relocating abroad).

· Sudden restructuring or partial transfers of activity, especially to international partners.

· Use of management fees or royalties between related entities.

These practices, although legal, can raise concerns when not properly documented.

6. Whistleblowing and Automatic Exchange of Information

Tax audits may also be triggered by:

· Anonymous tips from disgruntled employees or third parties.

· Cross-border information exchanges under the Common Reporting Standard (CRS), DAC6, or FATCA.

· Data from banks, platforms, or foreign tax authorities that do not match declared French income.

Random Selection Still Happens

In addition to targeted audits, the French administration also conducts random checks to maintain fairness and prevent systematic avoidance. Even compliant companies can be audited without any specific red flags.

How to Minimize Your Audit Risk

· Maintain transparent and well-documented accounting, especially for international operations.

· Keep detailed transfer pricing documentation and contracts.

· Declare all foreign income and accounts in accordance with French law.

· Seek professional advice before implementing complex cross-border structures.

Conclusion

While audits may seem unpredictable, they often follow clear risk patterns. Businesses — especially those with international activities or foreign clients — are under close and growing scrutiny by the French tax administration. Ensuring transparency, compliance, and proper documentation is key to limiting risk and protecting your reputation.

If your company is expanding internationally or facing an upcoming tax inspection, consulting a French tax lawyer can offer strategic protection and peace of mind.

Contact:

Mabrouk SASSI, lawyer Paris Bar

32 avenue Carnot – Paris 17th - France

infos@sassi-avocats.com

Tel 33 7.71.58.58.58

Tel 07.71.58.58.58

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For a span of over 30 years, our practice--comprised of attorneys specializing in Fiscal and Financial Criminal Law--has provided assistance to corporations, their executives, and other people engaged in tax and financial affairs such as problems relating to foreign bank accounts, offshore firms, international transactions, transfer pricing, et cetera.

Consequently, our legal professionals actively engage in all matters pertaining to tax and corporate criminal law encompassing offenses such as tax fraud, money laundering, misuse of social assets, undisclosed employment, and so on. This involvement extends to urgent legal proceedings, such as, tax investigations, rights of visit and seizure, tax-related searches, instances of flagrant tax offenses, custodial matters, voluntary interviews, and the freezing of bank accounts, among others.

This enables prompt intervention in situations requiring the implementation of preventive measures and/or attendance in surveillance and other hearings.

The extensive history of implementing taxes and criminal law in the business sector has contributed to the development of a strong reputation, as demonstrated by the frequent appearances of Mr. SASSI, a legal professional, in many respected media outlets such as L’Express, Les Échos, L’Expansion, L'Entreprise, and BFM Radio, among others.

Our clients comprise of both domestic and international entities, encompassing firms and persons located all over the world, as well as worldwide entities, including companies and individuals situated in regions such as Asia, the Middle East, the Americas, USA, Canada, Africa, and Maghreb.

Please feel free to reach out to us for any inquiries or requests for assistance pertaining to any regions of France, including the overseas territories (Dom Tom), as well as international locations.