On 16 April 2015, the Orléans Court of Appeal handed down a decision addressing an accountant’s liability for a client’s tax adjustments.
In this case, the client, a restaurant, was subject to a tax audit in 2011. The audit identified several tax violations, including incorrect VAT returns. The restaurant’s managers then initiated proceedings against their accountant, asserting that the accountant was liable for its tax penalties because
- the accountant accepted unofficial documents for the purpose of calculating the restaurant’s VAT;
- the accountant did not provide the participants of the general meetings with the minutes of said meetings; and
- the accountant issued inaccurate pay slips.
Under French law, the scope of an accountant’s liability is tied to the wording of the engagement letter, which defines the scope of the work entrusted to the accountant. The Court explained that the contract between an accountant and his/her client must be analyzed before assessing whether the accountant has met his or her obligations to the client.
The court also explained that regardless of the scope of an accountant’s engagement, he or she has a duty to provide certain information and advice. These inherent duties include
- a duty to warn clients of any accountancy irregularities; and
- a duty to provide clients with information about, and advise on, the tax, social, or financial options that are available to them.
The Orléans Court of Appeal ruled that the accountant could not be held liable for not having issued the minutes of the general meetings and for having issued inaccurate pay slips because the accountant’s engagement was only for the presentation of the accounts and did not include an audit of the company’s financial statements. Issuing reports and checking the pay slips of the restaurant was therefore not part of the accountant’s engagement.
However, the Court of Appeal ruled that the accountant was liable for failure to comply with the duty to provide information and advice to the clients. Indeed, the court pointed out that, for five years, the accountant had wrongfully accepted unofficial documents provided by the clients to calculate VAT, and never requested additional information or notified the restaurant’s managers that these documents had no probative value. The court acknowledged the good faith of the claimants who did not seem to be aware that official documents had to be provided to the French tax authorities.
To assess the damages to be paid by the accountant to the claimants, the Orléans Court of Appeal relied on the concept of “loss of opportunity” (“perte de chance”). The claimants were awarded damages for the loss of the opportunity to avoid tax penalties or, at least, to pay a smaller fine and the accountant was ordered to pay €23,360 (50 percent of the amount of the tax adjustments).
This decision underscores that the French courts will examine engagement letters to determine the scope of accountants’ liability in tax adjustment matters. However, accountants also have some inherent duties to provide information and advice to their clients.