Arsene Taxand – Tax audit and litigation
Audit of computerised accounting: introduced by the Amending Finance Law for 2012, prevention and reactions
February 05 2013
Article 14 of the Amending Finance Law for 2012 changed the system for representing accounting documents in dematerialised form to a mandatory system that no longer gives the taxpayer a choice on the disclosure of accounting information (Article L 47 A-I of the French procedure tax code).

As part of this new rule, the legislator strengthens the powers of the tax administration and makes it mandatory for all companies holding a computerized accounting, the representation of records in dematerialized form for tax audits from 1 January 2014.

Contrary to the implementation of a single audit procedure in the same way as numerous other European States, France combines two procedures: the first, close to the German method of tax audit (IDEA1), involves the mandatory representation of accounting documents via delivery of a copy of the accounting entry files defined in Articles 420-1 et seq. of the General Chart of Accounts (article L 47 A-I of the French procedure tax code), and the second involves the processing of computerised data in the frame of the procedure named “tax audit of computerised accounting” (article L 47 A-II of the French procedure tax code).

The failure to comply with this new requirement could in theory be punished severely:by a minimum fine of €1,500 per fiscal year or calendar year audited, that could be increased, in the event of serious violations, to 5‰ of sales or the gross revenue declared or adjusted (as applicable) per fiscal year or calendar year audited (Article 1729 D of the French Tax Code). or by a jeopardy assessment in case of obstruction of a tax audit (article L 74 du of the French procedure tax code). 

From a practical point of view, the period of one year will allow the company, as of now, to prepare for compliance with the new technical standards that data must meet, and enjoy to check its level of compliance with the requirements of the tax audit of computerised accounting (see CFCI: prevention and reactions, Arsene Taxand, February 2013).
 Consequently, it seems necessary to define a tax and technical strategy steered by the tax and finance divisions as well as the IT departments to ensure the consistency of the IT data disclosed and the accounting and tax treatment. This approach corresponds perfectly to the dual approach favoured by the French tax authorities (the general inspector assisted by the BVCI2 inspector).

At last, this single implementation date of 2014 will not preclude the application of the new rules to fiscal years that are not time-barred on the date of the audit notice.
Even though the current regulation provides this new obligation for tax audits from 1 January 2014 (which could concern the 2011, 2012 and 2013 fiscal years), it would be pleasant, and we hope it likely, as a deferral measure, the tax administration would accept that this regulation applies only to fiscal years from 1 January 2014.
 
Alain Recoules – Attorney at Law, Partner
alain.recoules@arsene-taxand.com                       
Nathalie Habibou – Attorney at Law
nathalie.habibou@arsene-taxand.com

  
1 Audit of basic data outside the IT system with processing by IDEA software, « Interactive Data Extraction and Analysis »
2 Computerised Accounts Audit Unit (in French, Brigade des Vérifications des comptabilités informatisées)

Audit of computerised accounting: introduced by the Amending Finance Law for 2012, prevention and reactions

Arsene Taxand – Tax audit and litigation



Audit of computerised accounting: introduced by the Amending Finance Law for 2012, prevention and reactions
Article 14 of the Amending Finance Law for 2012 changed the system for representing accounting documents in dematerialised form to a mandatory system that no longer gives the taxpayer a choice on the disclosure of accounting information (Article L 47 A-I of the French procedure tax code).

As part of this new rule, the legislator strengthens the powers of the tax administration and makes it mandatory for all companies holding a computerized accounting, the representation of records in dematerialized form for tax audits from 1 January 2014.

Contrary to the implementation of a single audit procedure in the same way as numerous other European States, France combines two procedures: the first, close to the German method of tax audit (IDEA1), involves the mandatory representation of accounting documents via delivery of a copy of the accounting entry files defined in Articles 420-1 et seq. of the General Chart of Accounts (article L 47 A-I of the French procedure tax code), and the second involves the processing of computerised data in the frame of the procedure named “tax audit of computerised accounting” (article L 47 A-II of the French procedure tax code).

The failure to comply with this new requirement could in theory be punished severely:by a minimum fine of €1,500 per fiscal year or calendar year audited, that could be increased, in the event of serious violations, to 5‰ of sales or the gross revenue declared or adjusted (as applicable) per fiscal year or calendar year audited (Article 1729 D of the French Tax Code). or by a jeopardy assessment in case of obstruction of a tax audit (article L 74 du of the French procedure tax code). 

From a practical point of view, the period of one year will allow the company, as of now, to prepare for compliance with the new technical standards that data must meet, and enjoy to check its level of compliance with the requirements of the tax audit of computerised accounting (see CFCI: prevention and reactions, Arsene Taxand, February 2013 ).
 Consequently, it seems necessary to define a tax and technical strategy steered by the tax and finance divisions as well as the IT departments to ensure the consistency of the IT data disclosed and the accounting and tax treatment. This approach corresponds perfectly to the dual approach favoured by the French tax authorities (the general inspector assisted by the BVCI2 inspector).

At last, this single implementation date of 2014 will not preclude the application of the new rules to fiscal years that are not time-barred on the date of the audit notice.
Even though the current regulation provides this new obligation for tax audits from 1 January 2014 (which could concern the 2011, 2012 and 2013 fiscal years), it would be pleasant, and we hope it likely, as a deferral measure, the tax administration would accept that this regulation applies only to fiscal years from 1 January 2014.
 
Alain Recoules – Attorney at Law, Partner
alain.recoules@arsene-taxand.com                      
Nathalie Habibou – Attorney at Law
nathalie.habibou@arsene-taxand.com

  
1 Audit of basic data outside the IT system with processing by IDEA software, « Interactive Data Extraction and Analysis »
2 Computerised Accounts Audit Unit (in French, Brigade des Vérifications des comptabilités informatisées)