Global Tax Alert | 1 August 2013

French government publishes decree on obligation to provide electronic accounting records upon a tax audit

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Scope of the new obligation

Article 11 of the Third Amended Finance Bill for 2012 enacted in December 2012 requires taxpayers who keep their accounts electronically to remit to the tax authorities at the beginning of a tax audit all their accounting records electronically for the financial years under audit, in the form of an accounting entry file (AEF).

The new rule applies for tax audits opened on or after 1 January 2014, meaning that taxpayers may have to remit an AEF for each financial year still open for audit by then (i.e., financial years 2011, 2012 and 2013 as well as prior financial years in which a loss was incurred and was offset against income of one the above mentioned financial years).

The AEF will substantially impact not only the audit procedure itself, but also day to day account-keeping requirements. A decree published on 1 August 2013 provides details on the content and format requirements of the AEF.

Data to be provided in the AEF for each accounting entry

For each accounting entry composing an AEF the decree lists eighteen data fields which must be included, notably the date and number of each entry, its French GAAP account number and title, and the date and reference of the supporting document. The decree provides for format specifications, and requires the AEF to match with the figures reported in the corporate income tax returns.

Impact for foreign multinationals

In order to generate a compliant AEF, French permanent establishments or subsidiaries of foreign multinationals will need to hold their day to day accounts under French GAAP:

  • Bookkeeping entries will have to be compliant with French GAAP, held in French language and according to the French Chart of accounts.
  • Any non-French schemes and processes of accounting will have to be excluded from the AEF if they do not comply with French GAAP.

Going forward, it will not be possible to keep accounting books in foreign GAAP only and merely generate a summary French GAAP balance sheet at the closing of a financial year for the purpose of the Corporate Income Tax return.

In addition, day to day accounting entries for prior years still open to tax audit will need to be converted into French GAAP in order to prepare a compliant AEF by 1 January 2014.

Applicable penalties

Taxpayers who fail to provide a compliant AEF upon the opening of a tax audit will be subject to a penalty of 0.5% of gross revenues per tax period (as adjusted by any tax reassessments), with a minimum penalty of €1,500.

Moreover, starting with 2014, if taxpayers refuse to provide an AEF, they could be subject to a unilateral tax assessment based on any information and data available to the French Tax Authorities (thus rejecting non-AEF compliant books

and records) and to additional fines that may reach 100% of the amounts reassessed (penalty for “obstruction to tax audit”).

Action required before 1 January 2014

Taxpayers have a very short period of time to comply with this new requirement.

In order to do so, they must audit and re-design their IT systems.

They must also prepare accounting, tax and IT teams for the implementation of a periodical AEF generation process, which may be complex to deploy if the company uses more than one accounting system, under different GAAP.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Société d'Avocats, Paris
  • Annie Morel
    +33 1 55 61 12 62
Ernst & Young LLP, French Tax Desk, New York
  • Frédéric Vallat
    +1 212 773 5889
  • Daniel Brandstaetter
    +1 212 773 9164
  • Martin Birée
    +1 212 773 3065

Ernst & Young LLP, Financial Services Desk, New York
  • Sarah Belin-Zerbib
    +1 212 773 9835

EYG no. CM3695