The Amended Finance Bill for 2012 has introduced new provisions regarding the documents which have to be submitted to the tax inspector in the context of a tax audit.
Companies that prepare their accounting documents using a computerised accounting system will now have to provide their accounting records in the form of an electronic accounting file (AEF) to the French tax authorities if they carry out a tax audit. This rule is applicable to French entities as well as French branches of foreign companies and may require some significant changes to existing practices.
In practice, this new obligation will be applicable for tax audits opened on or after 1 January 2014, which means that it could cover fiscal years 2011, 2012 and 2013 (but also prior years if the entity was in a loss-making situation during these years and such losses were offset against income realised during fiscal years 2011, 2012 and 2013).
Obligations applicable to entities having an activity in France before the enactment of the new law
French entities have to prepare their accounts in accordance with French GAAP principles. Nonetheless, French entities belonging to an international group sometimes use the accounting standards used by their foreign parent (such as US GAAP). Although this practice does not fully comply with the French rules, some tax inspectors have accepted it in the past.
Similarly, French branches, which are not subject to French GAAP principles, also use the accounting standards used by their parent.
In both cases, these entities merely prepare a summary balance sheet under French GAAP in order to prepare the French corporate tax return. The obligation to generate an electronic accounting file changes this practice.
New obligations applicable to entities having an activity in France from 1 January 2014
French entities will now have to provide the French tax authorities with the AEF based solely on French GAAP. The French tax authorities have detailed the content and the format of the AEF, which must be strictly followed in order to generate a compliant AEF.
Branches will also have to comply with this obligation, although these entities are still not subject to French GAAP.
This means that all accounting documents prepared at the level of the group will have to be converted in order to comply with French accounting standards and ultimately to generate a compliant AEF.
Companies providing an electronic document which does not comply with the AEF format may be subject to severe penalties (up to 0.5% of the company’s turnover). In addition, if the company refuses to provide this document, the entity may be subject to a unilateral tax assessment (“taxation d’office”) and be subject to a penalty of 100% of the tax due.
Entities with an activity in France should immediately take the required action in order to comply with this new obligation as the penalties are severe. In addition, compliant files also need to be prepared for fiscal years beginning as from 2011. Members of the company's accounting, tax and IT departments will have to work together in order to satisfy the requirements.