Documentary inspection, accounting audit, request for information, examination of personal situation… Tax audits can take many forms, in France as in Switzerland. In both cases, the aim is to strike a balance between the rights of the taxpayer and the powers of the tax authorities. In a cross-border context, vigilance is all the more essential, as misrepresentations, recharacterizations or legal inaccuracies can lead to substantial and lasting reassessments.
Different types of control: France vs. Switzerland
In France, tax audits are governed by the Book of Tax Procedures. They may concern private individuals (examination of their personal tax situation, ESFP) or companies (audit of accounts, documentary inspection). Each stage is formalized: notice of audit, request for documents, adversarial dialogue, rectification proposal.
In Switzerland, the procedure is largely cantonal. The tax authorities can intervene in a targeted manner, particularly when filing a tax return or in the event of a change in situation. Control methods are sometimes more flexible in form, but just as rigorous in substance. The taxpayer is required to produce the requested supporting documents within a short timeframe, failing which an ex officio tax assessment may be applied.
In both countries, an audit may be triggered by an alert, a cross-referencing of files or an apparent inconsistency in declarations.
Increased vigilance in cross-border situations
Certain situations attract particular attention from tax authorities: income received in one country but not declared in the other, holding of foreign bank accounts, presence of real estate in France by non-residents, opaque non-trading companies or holding companies, undocumented dividend flows, etc.
For example, a Swiss resident receiving rental income in France that has not been declared in France may be caught by a bilateral audit, notably via CRS exchanges.
The taxpayer is not without recourse
As soon as you receive notice of an audit, it’s essential to adopt an active stance. In France, the taxpayer has the right to be informed of the origin and scope of the audit, to consult his or her file, to be assisted by counsel and to present his or her observations prior to any rectification. In Switzerland, practice varies from canton to canton, but the adversarial principle also applies, particularly in direct tax matters.
The taxpayer may also request an extension of the deadline for replying, or produce additional explanations if in doubt about the legal interpretation or qualification of a flow, in certain situations.
Anticipate, document, negotiate
Reacting effectively to a tax audit means not waiting for the tax reassessment notice. From the outset, you should:
– Produce clear, coherent supporting documents;
– Adopt a well-argued legal position;
– Document cross-border flows with contracts, assembly decisions or accounting documents;
– Anticipate potential objections from the tax authorities.
In Franco-Swiss matters, it is important to include the bilateral tax treaty in the response, in particular to defend tax residence, justify taxation in a single state or challenge an erroneously applied withholding tax.
In many cases, a structured dialogue with the tax authorities can lead to an agreement, or even avoid the adjustment phase. Transparency, consistency and good faith remain essential elements for an amicable outcome.
Tax reassessment: what are the consequences?
If the audit results in a tax adjustment, the taxpayer may be liable for a tax reminder, together with interest and penalties. In France, these penalties range from 10% (simple failure to comply) to 40% or 80% in the case of deliberate failure to comply or concealment. In Switzerland, penalties vary according to canton and circumstances, and may give rise to criminal proceedings in cases of proven fraud.
The consequences can be long-lasting: the case may be entered in tax files, other tax regimes may be called into question, or tax benefits linked to expatriation or indirect ownership of assets may be lost.
Be accompanied from the outset of the inspection
BERGEOT PAOLI Associés assists individuals, entrepreneurs and wealthy families faced with a tax audit in France or Switzerland. From the very first notification, we are there to:
1. analyze the scope of the audit;
2. organize responses within an adversarial framework;
3. document cross-border flows;
4. defend the coherence of your wealth structuring;
5. negotiate with the administration if an amicable outcome is possible.
Upstream, we also take preventive action to identify areas of concern and reduce exposure to the risk of requalification.
For strategic support in your dealings with the tax authorities, discover our expertise in relations with the tax authorities.