Your French subsidiary has just received an avis de vérification, the formal notice that the French tax administration is opening an on-site audit of the company. For a foreign parent sitting in London, New York, Dubai or Singapore, the moment is stressful: the letter is in French, the deadlines are short, the auditor wants the accounts, and every mistake from this point on costs money. This article explains, step by step, how a foreign owner replies to the audit notice, organises the defence from abroad, answers the proposition de rectification within the thirty-day deadline, and contests the reassessment without losing procedural safeguards. It covers the audit notice and the on-site verification first, then the reassessment proposal, its cost, and the remedies available, so that a parent company that never sets foot in France can still run a disciplined, documented defence.
I. The audit notice and the on-site verification: what a foreign parent must check and organise
Everything in a French tax audit flows from the opening notice. If the notice is defective, the whole procedure can fall. If it is valid, the clock starts and the way the company behaves during the on-site phase determines whether the accounts survive, whether penalties apply, and whether the reassessment can later be challenged. A foreign parent must therefore treat the first letter as the most important document of the file, appoint a French point of contact immediately, and secure the accounting evidence before the auditor arrives.
A. We received an avis de vérification for our French subsidiary: what must we check first?
The avis de vérification is the letter by which the tax administration informs the company that an audit is starting. The administration is the Direction générale des Finances publiques, usually called the DGFiP, acting through the local corporate tax office, the Service des impôts des entreprises, known as the SIE. The audit itself is normally a vérification de comptabilité, which means an on-site examination of the company’s books for the years stated in the notice. A lighter remote procedure also exists, called the examen de comptabilité, conducted from the office on the basis of the electronic accounting file. In both cases the same starting rule applies, and it is stated in the Livre des procédures fiscales, the LPF, which is the French tax procedure code. Article L47 of that code provides: Un examen contradictoire de la situation fiscale personnelle d’une personne physique au regard de l’impôt sur le revenu, une vérification de comptabilité ou un examen de comptabilité ne peut être engagé sans que le contribuable en ait été informé par l’envoi ou la remise d’un avis de vérification ou par l’envoi d’un avis d’examen de comptabilité. In plain English: no audit without prior written notice identifying the years under verification. The first check, from abroad, is therefore simple: does the letter state exactly which financial years and which taxes are covered, and did it arrive before any substantive audit work began?
The second check concerns the right to be assisted by counsel. The same article continues: Cet avis doit préciser les années soumises à vérification et mentionner expressément, sous peine de nullité de la procédure, que le contribuable a la faculté de se faire assister par un conseil de son choix. The notice must expressly tell the company that it may be assisted by an adviser of its choice, and the sanction for forgetting that sentence is the nullity of the whole procedure. For a foreign parent, this is the single most valuable line of the letter: it is the legal basis for immediately instructing a French avocat or accountant to act for the subsidiary. If the sentence is missing, counsel should raise the nullity at once and in writing, because courts enforce this guarantee strictly. If it is present, the parent should use it without delay and give the adviser a written power of attorney, since the auditor will only deal with a properly mandated representative when the directors are abroad.
The third check is the taxpayer’s charter. The notice must tell the company that the charte des droits et obligations du contribuable vérifié, the charter of the rights and obligations of the audited taxpayer, can be consulted on the tax administration’s website or obtained on simple request. That charter is not decoration: it summarises the guarantees described in this article, including the adversarial debate, the hierarchical appeals and the right to the interlocuteur, the independent reviewer described below. A foreign parent should ask its counsel to obtain the current version immediately and to keep proof of the request, because disputes about which guarantees were offered often turn on documents.
The fourth check is the calendar. An on-site audit of a smaller business cannot drag on forever. Article L52 of the LPF provides: Sous peine de nullité de l’imposition, la vérification sur place des livres ou documents comptables ne peut s’étendre sur une durée supérieure à trois mois for businesses whose turnover stays below the statutory thresholds. The same article extends the on-site phase to six months where serious irregularities deprive the accounts of probative value: En cas de graves irrégularités privant de valeur probante la comptabilité. Dans ce cas, la vérification sur place ne peut s’étendre sur une durée supérieure à six mois. A foreign parent should therefore note the date of the first on-site visit, keep every invitation and report of visit, and ask counsel to track the three-month line. If the auditor exceeds it without a legal justification, the resulting reassessment can be annulled.
The fifth check is whether the company has already been audited for the same period. Article L51 of the LPF states the principle: Lorsque la vérification de comptabilité ou l’examen de comptabilité, pour une période déterminée, au regard d’un impôt ou d’une taxe ou d’un groupe d’impôts ou de taxes, est achevé, l’administration ne peut procéder à une vérification de comptabilité ou à un examen de comptabilité de ces mêmes écritures au regard des mêmes impôts ou taxes et pour la même période. In other words, once a completed audit has covered certain entries for certain taxes and a certain period, the administration cannot audit the same entries twice, subject to narrow exceptions such as fraud, flagrant tax offences, or a verification previously limited to specific transactions. A group that has been through a recent audit should pull out the earlier notices and closure documents and compare periods and taxes line by line before assuming the new notice is entirely lawful.
The sixth check is the adversarial debate itself, the débat oral et contradictoire. French courts treat the oral and adversarial discussion between the auditor and the taxpayer during the on-site phase as a substantive guarantee, not a courtesy. The Paris administrative court of appeal stated the rule in a 17 July 2023 decision on a company audit, cases 22PA02928 and 22PA02929, in these terms: Dans le cas où la vérification de la comptabilité d’une entreprise a été effectuée, soit, comme il est de règle, dans ses propres locaux, soit, si son dirigeant ou représentant l’a expressément demandé, dans les locaux du comptable dans lesquels sont déposés les documents comptables, c’est au contribuable qui allègue que les opérations de vérification ont été conduites sans qu’il ait eu la possibilité d’avoir un débat oral et contradictoire avec le vérificateur de justifier que ce dernier se serait refusé à un tel débat. The burden therefore lies on the company to prove that the auditor refused discussion, which is why minutes of meetings, attendance records and written questions matter so much. In that same case the court added that two documented meetings, an opening session and a closing summary session, supported by detailed exchanges on the operating process, were enough to defeat the claim: la seule circonstance que Mme B… n’aurait rencontré la vérificatrice qu’à deux reprises ne serait pas à elle seule susceptible d’établir qu’elle aurait été, ce faisant, privée de la garantie du débat oral et contradictoire attachée à la vérification de comptabilité. For a foreign parent, the lesson is operational: make sure the auditor actually meets someone who can answer, even if that person is the French counsel or accountant holding a mandate, and keep a written trace of every exchange. An empty office and an absent director are the fastest way to lose this guarantee.
One special situation deserves a warning. The administration may arrive without warning to record the physical elements of the business or the existence and condition of accounting documents. In that surprise scenario, article L47 provides that the notice and the charter are handed over at the start of the on-site findings, and that the substantive examination of the books can only begin after a reasonable delay allowing the taxpayer to arrange for counsel. A foreign-owned subsidiary caught by such a visit should cooperate with the physical findings, say nothing substantive about the accounts, and call its adviser the same day.
B. How does the on-site audit run when the parent company is abroad?
The basic principle is that the administration audits the French company, on French soil, under French rules. Article L13 of the LPF states: Les agents de l’administration des impôts vérifient sur place, en suivant les règles prévues par le présent livre, la comptabilité des contribuables astreints à tenir et à présenter des documents comptables. The verification may also be held or continued in any other place agreed between the taxpayer and the administration, and without agreement the administration can decide to hold it in its own offices. Distance does not suspend any of this. The auditor will not fly to the parent’s country, will not extend deadlines simply because the board sits abroad, and will not accept that key documents are unavailable because the group server is elsewhere. The foreign parent must therefore project itself into the French audit through a mandated representative and through complete, accessible records.
Practical organisation starts with three appointments in the first week: a French tax adviser with a written mandate covering the audit and the subsequent replies, the French accountant who holds the books, and one person inside the group who knows the business and can instruct both. The mandate should expressly cover receiving documents, attending meetings with the auditor, requesting the hierarchical appeals described below, and signing the reply to the reassessment proposal or the request for an extension. The auditor’s correspondence goes to the company’s French registered office, so the parent must organise immediate forwarding of every letter, because the thirty-day reply periods examined below run from receipt, not from the day the parent reads the scan.
The second task is securing the accounting evidence. The auditor examines all records that directly or indirectly contribute to the accounting and tax results, including the standardized electronic accounting file, the fichier des écritures comptables, universally called the FEC, which companies with computerized accounts must be able to produce. Bank statements, sales and purchase invoices, contracts with the parent, management fee agreements, transfer pricing documentation, loan agreements, payroll records and prior tax returns must be gathered in one place, in French or with translations ready for the key documents. Gaps are dangerous: if the administration rejects the accounts as non-probative, it reconstructs turnover and profit by its own methods, and courts uphold reconstructions unless the company proves them exaggerated. In the Paris case cited above, the court recorded that l’administration a écarté sa comptabilité comme non probante, et a, en conséquence, procédé à la reconstitution de son chiffre d’affaires, then upheld the method and confirmed the reassessment, ending with Article 1er : Les requêtes n° 22PA02928 de l’Eurl Me et Moon et n° 22PA02929 de Mme B… sont rejetées. The message for a foreign group is blunt: incomplete records do not shrink the reassessment, they enlarge the administration’s freedom.
The third task is managing the auditor relationship in writing. Every meeting should produce a short email confirming what was discussed, what was requested and what was delivered. Every document handover should be listed and dated. Questions from the auditor should receive written answers within the agreed time, and any impossibility should be explained in writing before the deadline rather than afterwards. If difficulties affect the conduct of the audit, the company can already ask to meet the auditor’s hierarchical superior before the reassessment proposal is sent, as the official remedies page of the tax administration confirms. Foreign parents sometimes fear that writing too much creates risk; in a French audit the opposite is true, because the file the court will later read is essentially the paper the parties exchanged.
The fourth task is considering spontaneous correction during the audit. French law offers a régularisation spontanée, a procedure allowing the company to correct errors, inaccuracies, omissions or shortfalls found by the auditor in returns filed on time, in exchange for a reduced late-interest rate equal to 70 percent of the normal rate. The official page on remedies during audits states that the request must be written, made before any reassessment proposal, limited to good-faith errors in timely returns, and accompanied by payment of the additional tax and interest when the supplementary return is filed. A foreign parent that discovers, while preparing the file, that a return was simply wrong should raise the point with its counsel immediately: paying the principal with reduced interest during the audit is almost always cheaper than defending the indefensible and collecting a deliberate-fault penalty later. The background picture on corporate taxation, including the standard corporate income tax framework that the audit will test, is set out in the firm’s pillar analysis of French corporate tax for foreign owners, which should be read alongside this audit guide.
The fifth task is watching the parallel fronts. An audit of the subsidiary often triggers questions about the parent: management fees without substance, interest-free shareholder loans, or profits shifted through loosely documented services. Each of those should be supported now, with signed agreements, invoices describing the services precisely, and evidence that the services were actually rendered and priced at arm’s length. If the subsidiary employs staff, the parent should also expect interest from the URSSAF, the social security collection agency, which runs its own controls with its own formal notice, the lettre d’observations. The Court of Cassation illustrated that parallel track in a 20 December 2018 decision, case 17-20.041, where à la suite d’un contrôle portant sur les années 2010 à 2012, l’URSSAF du Limousin (l’URSSAF) a adressé à la société Papeteries et cartonneries Lacaux frères (la société), le 28 mai 2013, une lettre d’observations comportant plusieurs chefs de redressement. Tax and social audits are legally distinct, but in a small subsidiary they feed each other, so the same discipline of complete records and written replies applies on both sides.
II. The reassessment proposal, its cost, and how to contest it from abroad
The audit ends either with an avis d’absence de rehaussement, a notice of no adjustment, or with a proposition de rectification, the formal proposal to reassess. For a foreign parent, that proposal is the decisive document: it states what the administration wants, why, and for how much, and it opens a short window in which a well-built reply can reduce the bill, remove penalties, or lay the ground for winning in court. Missing the window or answering vaguely is the most expensive mistake of the whole procedure.
A. We received a proposition de rectification: how do we answer within thirty days?
The proposition de rectification must be reasoned. Article L57 of the LPF provides: L’administration adresse au contribuable une proposition de rectification qui doit être motivée de manière à lui permettre de formuler ses observations ou de faire connaître son acceptation. The reasoning must allow the company to understand the legal basis, the facts relied upon and the calculation, so that it can accept or reply with full knowledge. Alongside the reasoning, the administration must state the figures: article L48 of the LPF requires it to indicate, before the taxpayer presents observations or accepts, the amount of duties, taxes and penalties resulting from the envisaged adjustments. A proposal that asserts conclusions without explaining them, or that hides the arithmetic, is vulnerable, and counsel should say so precisely, identifying what is missing rather than complaining in general terms.
The reply deadline is thirty days from receipt. Article L11 of the LPF states the default rule: le délai accordé aux contribuables pour répondre aux demandes de renseignements, de justifications ou d’éclaircissements et, d’une manière générale, à toute notification émanant d’un agent de l’administration des impôts est fixé à trente jours à compter de la réception de cette notification. For the reassessment proposal specifically, article L57 adds a one-time lifeline: Sur demande du contribuable reçue par l’administration avant l’expiration du délai mentionné à l’article L. 11, ce délai est prorogé de trente jours. In practice this means the company can obtain thirty additional days by sending a written extension request that reaches the administration before the first thirty days expire. A foreign parent should instruct counsel to file that request systematically on receipt, by a traceable channel, because assembling evidence across borders, translating documents and obtaining board instructions always takes longer than expected, and the extension is free. It should never be assumed: without a timely request, the administration may close the reply phase and move to collection.
The content of the reply matters more than its length. An effective reply follows the proposal paragraph by paragraph, accepts what is correct, contests what is wrong with documents, and quantifies an alternative where possible. Acceptance of part of the adjustments is not weakness: it narrows the dispute, reduces interest and penalty exposure on the accepted part, and gives credibility to the contested part. Silence on a point counts as acceptance in practice, because the court will later ask what the company actually disputed and with what evidence. The reply should be sent by registered letter with acknowledgment of receipt, the lettre recommandée avec accusé de réception, or through the professional online account with proof of filing, keeping the receipt with the file. When the administration rejects the observations, its answer must also be reasoned: article L57 closes with Lorsque l’administration rejette les observations du contribuable sa réponse doit également être motivée. That reply, commonly called letter 3926, sets the final position of the administration before collection and frames the subsequent appeals.
Before or just after that reply, the company can activate the internal reviewers. The tax administration’s official remedies page describes two successive levels: first the hierarchical superior of the auditor, who can be met during the audit and again after the administration’s answer to the observations, then the interlocuteur, a reviewer specially designated by the director, whose names and administrative address appear in a note on the audit notice itself. The request for the interlocuteur generally follows the meeting with the superior, except where penalties excluding good faith were validated by the superior’s signature on the proposal, in which case direct access is possible. These meetings are not court hearings: they are frank technical discussions where a well-prepared file, with the decisive three or four documents on the table, can remove an adjustment or downgrade a penalty. A foreign director can attend by video where offered, but the room is usually held by the French counsel and accountant, which is another reason the mandate must be broad and current.
Where the dispute turns on facts rather than law, the departmental tax commission can be asked to give an opinion. Article L59 of the LPF provides that where disagreement persists on the notified adjustments, the administration, if the taxpayer so requests, submits the dispute to the commission for direct taxes and turnover taxes, the commission des impôts directs et des taxes sur le chiffre d’affaires: Lorsque le désaccord persiste sur les rectifications notifiées, l’administration, si le contribuable le demande, soumet le litige à l’avis soit de la commission des impôts directs et des taxes sur le chiffre d’affaires prévue à l’article 1651 du code général des impôts, among other competent bodies. The opinion does not bind the administration, but it creates an independent reading of the file that weighs in later settlement or litigation, and the request itself signals seriousness. Counsel should check whether the disputed items fall within the commission’s remit before requesting it, because requesting it on purely legal questions wastes months.
Finally, penalties can sometimes be negotiated even when the principal tax cannot. The transaction, described on the same official remedies page, is a written contract with reciprocal concessions: the administration cannot reduce the principal tax, duty or levy of any kind, but it can soften penalties that were imposed or are foreseeable, while the company pays the agreed duties plus the reduced penalties and gives up further challenge of the covered items. A transaction request goes directly to the department that issued the proposal and can be filed even before the tax is finally assessed and collected. For a foreign group that wants certainty and closure, for example before a financing round or a sale, this route deserves a candid discussion with counsel once the reply to the proposal has been filed.
B. What will the reassessment cost and how do we challenge it in court?
Every reassessment has three layers: the principal tax, late interest, and penalties. Late interest is automatic on any tax claim not paid by the legal deadline. Article 1727 of the Code général des impôts, the CGI, which is the French general tax code, fixes its rate in these terms: Le taux de l’intérêt de retard est de 0,20 % par mois. The interest runs month by month on the additional tax and compounds the cost of a long dispute, which is why partial acceptance and early payment of the undisputed part are financially rational even while contesting the rest. Penalties depend on behaviour. Article 1729 of the CGI provides: Les inexactitudes ou les omissions relevées dans une déclaration ou un acte comportant l’indication d’éléments à retenir pour l’assiette ou la liquidation de l’impôt ainsi que la restitution d’une créance de nature fiscale dont le versement a été indûment obtenu de l’Etat entraînent l’application d’une majoration de : a. 40 % en cas de manquement délibéré ; with 80 percent for abuse of rights and for fraudulent manoeuvres or concealment of part of a contract price. The difference between an error and a deliberate fault is therefore worth 40 points of the reassessed base, and the difference between a defended file and an empty file is often exactly that qualification. Management fees with no service behind them, cash sales hidden from the books, or accounts without inventory are the classic facts that push a file from error into deliberate fault, as the Paris decision above showed when it upheld the deliberate-fault surcharge on the ground of serious accounting failures and concealed receipts of nearly 30 percent of turnover.
Beyond money, persistent fraud exposes the individuals. French tax fraud can lead to criminal prosecution in addition to the tax reassessment, and a foreign director is not protected by residence abroad where the French company was the instrument. The criminal chamber of the Court of Cassation confirmed the pattern in a 7 January 2026 decision, case 24-83.286, where M. [M] [S] [X] a formé un pourvoi contre l’arrêt de la cour d’appel de Versailles, 9e chambre, en date du 26 avril 2024, qui, pour fraude fiscale, l’a condamné à un an d’emprisonnement avec sursis, 50 000 euros d’amende dont 35 000 euros avec sursis, cinq ans d’inéligibilité, une mesure d’affichage de la décision et a prononcé sur les demandes de l’administration fiscale, partie civile. The appeal was rejected. Not every audit ends in a criminal complaint, far from it, but files with hidden receipts, forged documents or repeated bad faith attract the attention of the administration’s legal service, and the time to keep the file civil is during the audit and the reply, not after the complaint is filed.
If the internal remedies fail, the dispute moves to formal contestation. The standard path is a written claim, the réclamation contentieuse, filed with the tax office after the tax is assessed and put into collection, followed, if the administration rejects it expressly or by silence, by an appeal to the administrative court, the tribunal administratif, and then possibly to the administrative court of appeal. Deadlines are strict and run from receipt of each decision, so the forwarding chain from the French registered office to foreign management must be tested before it matters. The court reviews both procedure and substance: it annuls reassessments built on irregular procedures, such as a notice without the counsel warning or an audit without genuine adversarial debate, and it discharges or reduces reassessments whose factual basis the administration cannot defend. But courts also reject weak procedural arguments firmly, as the Paris court did when it dismissed both joined claims in the case above. A foreign parent should therefore ask counsel for a frank two-column assessment, procedure and substance, before litigating: a nullity argument that wins ends the case, while a nullity argument that loses and hides a weak factual file only adds years of interest.
Evidence discipline decides most cases. Where the accounts were rejected as non-probative, the administration’s reconstruction stands unless the company proves it excessive with concrete material, and general statements about business conditions do not suffice. Where transfer prices or management fees are at stake, the parent must produce the contract, the invoice with a precise description, proof of actual performance such as reports, timesheets or correspondence, and a pricing analysis consistent with what independent parties would agree. Where turnover was reconstructed from external data, such as purchases of consumables in the Paris salon case, the company must counter with its own documented ratios, stock movements and separate sales records, not with assertions. Organising that evidence from abroad takes time, which is precisely why the systematic extension request, the early mandate to counsel, and the paragraph-by-paragraph reply described above matter: they buy the weeks needed to turn a foreign group’s scattered records into a French court-ready file.
Collection runs alongside contestation and must not be ignored. Reassessed tax is put into collection and becomes payable even while the claim or the court case is pending, unless a stay is obtained. The claim can include a request to defer payment with appropriate guarantees, and counsel should coordinate payment, guarantee and contestation so that the company neither defaults nor pays without reservation what it intends to recover. Interest accrues in the meantime at the monthly rate above, so the financing cost of the dispute should be part of the board’s decision to settle, transact or litigate. For groups watching cash across borders, moving funds early to cover at least the undisputed principal is usually the cheapest form of risk management.
Conclusion
A French tax audit run from abroad is won in the first thirty days and in the written file. Check the audit notice against article L47, use the counsel guarantee immediately, calendar the three-month audit limit and the thirty-day reply period with its extension, keep a written trace of every meeting to protect the adversarial debate, correct good-faith errors through spontaneous correction before the proposal arrives, answer the proposition de rectification paragraph by paragraph with documents, escalate to the hierarchical superior and the interlocuteur, consider the commission and the transaction on penalties, and litigate only on arguments that survive a candid review of procedure and proof. The reassessment in the Paris case failed to fall because the company could neither prove a denial of debate nor defeat the reconstruction built on its own accounting failures. A foreign parent that organises early, mandates French counsel, secures the FEC and the supporting contracts, and treats each deadline as running from receipt at the French office gives itself the opposite outcome: lower penalties, narrower adjustments, and a court file that a judge can actually follow.
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