How to Respond to a French Tax Audit as a Foreign Company

 

Facing a French Tax Audit? Here’s What Every International Company Should Know

 

France’s tax authorities (DGFIP) have become among the most advanced in Europe, combining artificial intelligence, data sharing, and TRACFIN intelligence to detect cross-border irregularities.

 

For foreign companies, a French tax audit can feel complex. But with the right legal strategy, it can be managed effectively, and even resolved without penalties or litigation.

 

Discover how to manage a French tax audit efficiently, from audit notice to legal response, with strategic, discreet representation by Sassi Law Firm, experts in cross-border tax defense.

 

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France has one of Europe’s most sophisticated tax administrations, proactive, data-driven, and internationally connected.

For foreign companies operating in France, a tax audit can seem daunting. Yet, with the right strategy and legal guidance, it can be managed effectively and even resolved without penalties or litigation.

 

At Sassi Law Firm, we assist multinational companies, non-resident investors, and international executives facing French tax audits. This article outlines the essential steps to understand, anticipate, and respond to a French tax audit professionally and efficiently.

 

Understand Why You Are Being Audited

 

The French Tax Administration (Direction Générale des Finances Publiques – DGFIP) initiates audits to verify the accuracy of declarations and detect irregularities.

Foreign companies can be audited for various reasons:

 

·      Cross-border operations involving French subsidiaries or permanent establishments;

·      Transfer pricing discrepancies between related entities;

·      VAT inconsistencies in intra-EU or international trade;

·      TRACFIN alerts (financial intelligence reports on suspicious flows);

·      Data mismatches arising from international information exchanges (OECD CRS, FATCA, or EU DAC6).

 

Audits are increasingly triggered by automated risk analysis using AI and data from banks, customs, and tax databases.

 

Understanding the cause helps define your defense strategy — technical, procedural, or factual.

 

Identify the Type of Tax Audit

 

French audits fall into distinct categories, each with specific procedures and legal implications:

 

Desk Audit (Contrôle sur pièces)

 

Conducted remotely, this audit reviews your company’s tax filings and supporting documentation.

 

The DGFIP may request clarifications or additional evidence, often by letter.

 

It usually concerns limited issues, VAT, company tax, or withholding tax, income tax.

 

On-Site Audit (Vérification de comptabilité)

 

A more comprehensive review, carried out at your French premises or at your accountant’s office.

 

It examines accounting records, contracts, invoices, and transaction details.

 

You will receive a formal Notice of Audit (avis de vérification), which specifies:

 

·      The taxes and years under review;

·      The auditor’s identity;

·      Your procedural rights (especially the right to counsel).

 

Personal Tax Audit (Examen de situation fiscale personnelle)

 

When executives or shareholders are French residents, the DGFIP may cross-check company and personal data.

 

This is common when dividends, loans, or benefits in kind appear inconsistent with declared income.

 

Understanding the audit type is crucial to apply the correct response deadlines and procedural safeguards.

 

Exercise Your Legal Rights

 

Foreign companies enjoy the same procedural rights as French taxpayers, governed by the Livre des Procédures Fiscales (LPF).

 

Key Rights Include:

 

·      Right to legal representation: You may appoint a tax lawyer at any stage.

·      Right to access information: You can request the evidence used to justify the audit.

·      Right to respond: You must be given a chance to reply before any reassessment.

·      Right to extend deadlines: The 30-day period to reply can often be extended to 60 days.

·      Right to appeal: You may contest proposed adjustments before specialized tax commissions or courts.

 

Invoking these rights early ensures that your defense remains both procedural and substantive.

 

Communicate Professionally and Transparently

 

A cooperative, structured approach helps maintain a constructive tone with auditors.

 

All communication should be formal, factual, and ideally routed through counsel.

 

Best practices include:

 

·      Acknowledge audit notices promptly;

·      Provide documents in an organized, indexed format;

·      Avoid unnecessary statements — respond only to specific requests;

·      Keep records of all correspondence and meetings;

·      Maintain professional courtesy while safeguarding your legal position.

 

French auditors are trained to evaluate behavior — professionalism and transparency often influence the tone and flexibility of the audit.

 

Respond to the Notice of Proposed Adjustments

 

At the end of the audit, the DGFIP issues a Notice of Proposed Adjustments (Proposition de rectification).

 

This document details the adjustments, penalties, and rationale.

 

You have 30 days (extendable to 60) to respond in writing. This stage is decisive as your reply determines whether the reassessment becomes final.

 

Your Response Should:

 

·      Address each adjustment point-by-point with legal and factual arguments;

·      Cite relevant provisions of French and international tax law;

·      Reference court precedents (Conseil d’État, CJUE, or OECD guidance);

·      Include supporting documentation — invoices, contracts, transfer pricing reports, or accounting reconciliations.

 

A persuasive and substantiated reply can lead the auditor to reconsider, modify, or withdraw adjustments entirely.

 

At Sassi Law Firm, we often achieve favorable outcomes through detailed written submissions that combine technical precision with strategic negotiation.

 

Anticipate Cross-Border Issues

 

For foreign entities, cross-border complexity increases risk.

 

French auditors often examine relationships with parent or sister companies abroad, seeking to verify:

 

·      Transfer pricing policies under OECD BEPS guidelines;

·      Economic substance of foreign entities;

·      Arm’s-length remuneration for services rendered to or from France;

·      Profit allocation within multinational groups.

 

If your company operates in multiple jurisdictions, ensure documentation is consistent across all entities — mismatched data between France and other countries can trigger additional inquiries.

 

Consider Voluntary Disclosure When Appropriate

 

If your company identifies undeclared income, transfer pricing discrepancies, or reporting errors, a voluntary disclosure before the audit progresses can substantially reduce penalties.

 

Benefits Include:

 

·      Reduction of penalties from 40–80% to 10–20%;

·      Avoidance of criminal prosecution;

·      Faster resolution with reduced reputational risk.

 

A well-structured voluntary disclosure, prepared through legal counsel, demonstrates good faith and strengthens credibility with the authorities.

 

Manage Reputational and Executive Risks

 

In France, the line between corporate and personal responsibility is narrow.

 

Executives and board members may be held personally liable under Article L.267 LPF or Article 1741 CGI if mismanagement or fraudulent intent is proven.

 

To Protect Executives:

 

·      Ensure accurate delegation of tax responsibilities;

·      Retain copies of all board decisions involving fiscal strategy;

·      Document reliance on expert advice (lawyers, accountants);

·      Avoid personal communication with auditors without counsel present.

 

If a case escalates to the Parquet National Financier (PNF), early legal intervention is essential to control both criminal and reputational exposure.

 

Appeal Strategically if Necessary

 

If your written response fails to convince the DGFIP, you may challenge the reassessment through several channels:

 

·      Hierarchical appeal: Request a meeting with a senior tax officer.

·      Conciliation or mediation: Engage in dialogue with the Commission des Impôts or Commission Départementale de Conciliation.

·      Judicial appeal: File a case before the Administrative Tribunal within legal deadlines.

·      Appeals often focus on procedural errors, legal misinterpretation, or valuation disputes.

 

A well-structured appeal file, supported by evidence and jurisprudence, can overturn even significant adjustments.

 

Engage Expert Legal Support Early

 

Navigating a French tax audit as a foreign company requires strategic planning and local expertise.

 

Each step — from document requests to final negotiations — must be legally sound and procedurally correct.

 

A French tax lawyer ensures that:

 

·      Deadlines are met and rights protected;

·      Communications remain professional and controlled;

·      Arguments are aligned with current jurisprudence;

·      Settlement or appeal opportunities are optimized.

 

At Sassi Law Firm, we act as a single point of contact for foreign clients — coordinating with auditors, accountants, and international counsel to achieve efficient and discreet resolutions.

 

Expertise of Sassi Law Firm – Paris

 

For over 30 years, our practice, composed of attorneys specializing in Tax, Corporate, and Financial Criminal Law, has assisted international clients, corporations, and high-net-worth individuals in addressing complex issues related to French wealth taxation, cross-border investments, and international compliance.

 

Areas of Intervention

 

Our legal professionals are actively involved in matters covering:

 

·      International structuring: ownership through French or foreign companies (SCI, holding entities, or trusts).

·      Tax audits and investigations: representation before the Direction Générale des Finances Publiques (DGFiP) and French tax courts.

·      Voluntary disclosures and tax regularizations, particularly for undeclared real estate holdings.

·      Financial and corporate criminal law, including tax fraud, money laundering, and unlawful asset transfers.

·      Wealth tax compliance (IFI): asset valuation, declaration, and audit defense.

 

Our team regularly assists during urgent proceedings such as tax investigations, seizures, account freezes, and international information requests, ensuring efficient protection of our clients’ rights and interests.

 

Reputation and Media Presence

 

The long-standing experience of Mabrouk Sassi, attorney registered with the Paris Bar, in the field of tax and financial criminal law has earned the firm a solid reputation within the business community.

 

Mr. Sassi has been regularly featured in major media outlets, including L’Express, Les Échos, L’Expansion, L’Entreprise, and BFM Business, where he provides expert commentary on tax and financial legal issues.

 

An International Practice

 

Our clients include companies, family offices, and individuals located across Europe, the Middle East, Asia, North America, and Africa.

 

We provide legal assistance for:

 

·      Tax optimization and anti-abuse risk management under OECD and EU frameworks.

·      French wealth tax compliance for non-residents owning real estate in France;

·      Cross-border investments involving France and offshore jurisdictions;

 

The firm also represents clients before French administrative and criminal courts for matters related to IFI reassessments, asset concealment allegations, or fraud proceedings.

 

Contact

 

Mabrouk Sassi, Attorney at Law – Paris Bar

Sassi Law Firm

32 avenue Carnot – 75017 Paris – France

infos@sassi-avocats.com

+33 7 71 58 58 58

www.sassi-avocats.com

 

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Key words

• Transfer Pricing

• Base Erosion and Profit Shifting (BEPS)

• Double Taxation Treaties

• Permanent Establishment

• Cross-Border Transactions

• Controlled Foreign Corporation (CFC) Rules

• OECD Guidelines

• Tax Information Exchange Agreements (TIEA)

• Advance Pricing Agreements (APA)

• Country-by-Country Reporting (CbCR)