Effective January 1, 2014, new rules require companies to maintain digitalized systems and produce audit documentation in a “dematerialized” (electronic) format. Moreover, the documents must comply with the French accounting standards.
The new requirement applies to all French tax areas and issues—including transfer pricing, income tax, and value added tax (VAT)—for which a notification of the start of a tax audit is issued by the French tax authorities after January 1, 2014 (keeping in mind that an audit can cover at least the last three financial years, even more years if the company was in a “loss position”).
New rules to maintain digital records, comply with French accounting standards
In late December 2012, France modified its tax procedure code to impose new requirements on companies subject to tax in France and under audit by the French tax authorities.
Article 14 of the Third Corrective Finance Act for 2012 (3eme Loi de Finances rectificative pour 2012) provides that taxpayers must supply “soft copies” of their accounting entries and balances, and that failure to do so can result in a penalty equal to 0.5% of the turnover amount of the audited year, with a minimum penalty amount of €1,500 if greater than the amount of the 0.5% penalty.
Thus, effective January 1, 2014, the new rules require that:
- Companies maintain digitalized systems and produce audit documentation in a “dematerialized” (electronic) format
- Such documents comply with the French accounting standards
To reiterate—these new requirements apply to all French tax issues (including transfer pricing, income tax, and VAT) for which notification of the start of a tax audit is issued by the French tax authorities after January 1, 2014.
Multinational enterprises with activities in France and that maintain their global accounts based on accounting standards other than those of France (such as U.S. GAAP) need to be aware of these new required documentation rules.
Although all French companies, even those owned by non-French shareholders, already were required to maintain their accounts pursuant to French accounting principles before the enactment of these new rules, there were reports of French tax inspectors accepting, from time to time (but not always), taxpayers documents that did not comply with French accounting standards.
However, with the required computerization of accounting and tax audit procedures in France, tax professionals believe that a taxpayer’s production of any document not complying with French accounting standards will not comply with the new rules—and could result in penalties.
Taxpayers with activities in France need to review whether their French operations comply with French accounting standards and determine that their accounting documents can easily and quickly be converted and comply with French accounting standards.
For more information, contact a KPMG tax professional:
Gilles Galinier-Warrain, French Tax Center, KPMG LLP, New York