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French tax authorities inform you that they will be auditing you through a so called examen contradictoire de situation fiscale personnelle (ESFP). No need to panic. Let us cope with this phrase. Remember that you are deemed to be in good faith!

French tax authorities inform you that they will be auditing you through a so called examen contradictoire de situation fiscale personnelle (ESFP). No need to panic. Let us cope with this phrase. Remember that you are deemed to be in good faith!

Published on : 16/09/2020 16 September Sep 09 2020
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An examen contradictoire de la situation fiscale des personnes physiques (ESFP) is literally a contradictory examination of the tax situation of individuals. It is, towards individuals, what vérification de comptabilité is towards enterprises. therefore, it is a form of tax audit applicable to natural persons (individuals).
The tax audit by the tax authorities does not influence your bad faith. The taxpayer is deemed to be in good faith.

What is ESFP about? What do French authorities seek?
It is important to know that French tax system is a declarative system: each person declare his own income under his responsibility. It is then, up to tax authorities to calculate the tax that you owe accordingly to the tax declaration that you file. That tax you owe is mentioned on your tax return sent by the authorities.
The corollary of this declaration system is that the authorities are enabled to audit the consistency of your declarations and to compare them to the reality of your situation.
ESFP is about, for Tax authorities, to check the consistency between:
  • Income that you have declared
 
  • The situation of your assets, your cash flow situation, the lifestyle elements of your tax household.

Through an ESFP, the tax authorities try to check sincereness and trueness of your income tax filing.
Be serene and remain impassive. Keep in mind as a leitmotiv all along the tax audit: “I am deemed to be good faith”. The taxpayer who is undergoing a tax audit is deemed to be in good faith before the tax audit, or even when after the tax audit, the tax authorities would question untrueness of your income tax filing.

Where is ESFP taking place?
The law does not impose a specific location where the audit operations must take place. The tax authorities, for its part, recommends that its officials conduct the ESFP in the premises of the tax department.
Nevertheless, the audit may be held elsewhere: at your counsel's office, or at your own premises if you do not object.

Should I cooperate on a tax audit?
You are deemed to be in good faith. You are not obliged to cooperate; you can choose to be in a passive mood but it is in your interest to cooperate and to answer to the questions that the inspector asks you.
There is no reason to turn the tax audit into a confrontation. An attitude of confrontation could be detrimental to you.
If there is no risk to be charged with tax audit opposition as you may be in the tax audit applicable to enterprises, a non-cooperative attitude may be subject to a kind of arbitrary from tax authorities. The latter can use as a weapon taxation or évaluation d’office process which are very specific with less guarantees for the taxpayer.

What can French authorities do? What are your guarantees?
You are deemed to be in good faith: tax authorities have extensive but those are combined with guarantees for the taxpayer.
Even outside an audit, tax authorities are entitled to send you a request of information (known as demande d’informations) a request of (known as demande d’éclaircissements ou de justifications).
The tax authorities can ask you or another person information about you.
The tax authorities may seek to examine your accounts. French law authorises the tax authorities in the notice the latter send you prior to your tax audits, your account.

As a counterpart to all this, you are benefit from certain guarantees.
You are entitled, for instance, to be assisted by a lawyer during the ESFP. The tax authorities have the obligation to inform you about that possibility in the letter they sent you prior to your audit. As a result, you benefit from a sufficient delay from, on the one hand, the day you received the letter informing you about an upcoming ESFP to, on the other hand, the date that the ESFP begins. This delay is aimed at allowing you to ask for the assistance of a counsel.
As its name suggests, ESFP is led in contradictory. That means that the inspector who is auditing you shall not gather information and decide in a peremptory way, deciding, for instance, to refuse a deduction or to state that this or that is false.
The tax inspector shall have with you an oral and contradictory dialogue (dialogue oral et contradictoire). That obliges him to have verbal communications with you instead of writing communications only. That prevents the authorities to have any peremptory attitude towards you. It obliges the tax authorities a minded-openness which implies to discuss with you about any.
The inspector shall discuss with you about the different elements he gathers.

When does an ESFP end?
You are always presumed to be in good faith. The ESFP takes time, energy, it requires fees. The duration of the ESFP is not at the discretion of the tax authorities. In fact, the tax authority reminds you of the maximum duration of the ESFP in the notice of audit it sent to you beforehand.
The duration of an ESFP is limited to a maximum of one year from the date you receive the audit notice.
The one-year period is counted from the date of receipt of the notice informing you that you will be subject to an ESFP. The computation ends on the date a tax reassessment proposal is sent to you.
This period is extended in certain situations. For example, if a covert activity (activité occulte) is discovered during the ESFP, the maximum duration of the ESFP is extended to two years.

What are the aftermaths?
You are always presumed to be acting in good faith. You can therefore expect that certain information relating to the ESFP you have undergone will be brought to your attention. At the end of the ESFP, the tax authorities must inform you of the results of the tax audit, even if there are no enhancements.
In principle, if the tax authorities consider that the taxes you are liable for are higher than the taxes you actually paid (or did not pay), they will send you a contradictory tax reassessment proposal. This is the end of the ESFP (so you can now check whether the rule on the maximum duration of the ESFP has been respected).
Nothing is final at this stage (you are still presumed to be in good faith) and you can reply to this contradictory tax reassessment proposal.

Precautions
You're always presumed to be acting in good faith. You must use that good faith for your advantage.
You must prepare your ESFP, anticipating the questions that will be asked by the inspector who will be in front of you.
It is useful to consult a tax lawyer who is familiar with tax proceedings rules and who is able to respond to the tax authorities in a detailed and reasoned manner.
Keep in mind that the outcome of the ESFP is, in general, the sending of a contradictory tax reassessment proposal. The intervention a tax lawyer from the beginning of the audit will allow the latter to have an overview of the situation and how the tax audit has been led. It will ultimately allow the lawyer to anticipate the taxpayer's arguments in response to the tax reassessment proposal.


The tax law firm Malick DIOUF located in the Yvelines (78) assists you, particularly in Paris, Lyon or Marseille in the context of an ESFP or to respond to the tax assessment proposal letter following an ESFP.
 
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