Computerised accounting for French entities and tax audits
New provisions have recently been introduced in France under the Third Amended Finance Bill 2012 that are of importance to all French entities, including French branches of non-French companies, subject to a tax audit.
The new rules relate to tax audits after 1 January 2014 and to the documents to be provided to the tax inspector by a French company in the course of that audit. The effect may result in the company taxpayer being obliged to file an accounting entry file (AEF) for the years from 2011 to date.
The adoption of this process may require some companies to review their existing record keeping and bookkeeping practice and procedures to bring it into line with French GAAP practice, including being in French language and follow the French chart of accounts.
At present, French entities of multinational companies frequently follow the accounting standard adopted by the parent company. While this practice is often accepted by French tax inspectors, it is not wholly in compliance with French accounting rules, which require accounts to be in accordance with French GAAP regulations.
There is no requirement for French branches of foreign parents to adopt French GAAP principles and these branches also often adopt the parent company’s accounting standard.
Currently, both the French company and the French branch, prepare a simple summary balance sheet under the French GAAP rules for the French corporate tax return.
However, from now on such practice will need to change. French entities, whether a French entity or a French branch of an international company, must adopt the French GAAP principles when preparing the AEF to be provided to the French tax authorities.
Although GAAP still does not apply to a French branch of an international company, they will in effect, be obliged to comply with the regulations from now.
The GAAP requirements must be strictly followed for the AEF to be compliant; with the effect that group accounting will need to be French GAAP compliant. It should also be noted that accounts for prior years that remain open to tax audit, may need to be converted to French GAAP standards for the AEF to be compliant.
Penalties for non-compliance
There are penalties should a non-compliant AEF document be provided of up to 0.5% of turnover. Furthermore, from now on should a company unwisely refuse to provide a compliant AEF the tax authorities have the power to impose a unilateral tax assessment based on any data and information available to the tax authorities, so rejecting non-compliant AEF documents and imposing a penalty of 100% of the tax due.