On a Friday in July, a company director receives a registered letter from the French tax authorities (Direction générale des Finances publiques, DGFiP). Subject: notice of proposed adjustment. Three financial years are targeted, several hundred thousand euros of tax are at stake, and a 40% surcharge is announced. At the bottom of the first page, one line: he has thirty days to respond. He thinks about calling his accountant on Monday, then decides it can wait until September.
This is precisely the interval in which many cases are lost. Tax litigation does not begin at the administrative court, years later. It begins the moment this letter arrives, and the essentials are often decided in the first few weeks - at a point when the taxpayer does not yet feel he is in a dispute. Understanding what is actually happening at this stage, and what every silence or every response commits you to, is what separates a contained reassessment from one that is simply endured.
The notice of proposed adjustment is not merely information. It is the act that opens the adversarial reassessment procedure and sets the framework for the debate to come. Article L. 57 of the French Tax Procedure Code (Livre des procédures fiscales) requires it to be reasoned, so as to allow the taxpayer to submit observations or to state acceptance. This requirement of reasoning is not a formality: it is a field of discussion in its own right, since insufficient or imprecise reasoning affects the validity of the procedure.
The taxpayer has thirty days to respond, which may be extended by a further thirty days on a request made within that same period, as provided by Article R.* 57-1 of the same Code. This deadline is a trap more than a convenience. Failing to respond does not make the reassessment disappear: it amounts to tacit acceptance of the proposed adjustments. The debate that could have been opened then closes on its own, and the burden of proof, which could have rested on the DGFiP, shifts to the taxpayer's disadvantage for what follows.
Responding quickly is not enough. A poorly calibrated response may concede a point that should have been defended, or conversely harden a position the DGFiP might have been willing to soften. It is at this stage that the architecture of everything that follows - up to the judge if necessary - is decided. Hence the importance of treating this letter as the first act of a dispute, not as one more piece of administrative correspondence.
The amount of tax reclaimed is only part of what is at stake. The classification the DGFiP applies to penalties is often just as decisive, sometimes more so. Article 1729 of the French General Tax Code (Code général des impôts) provides for a 40% surcharge in the event of a deliberate breach, raised to 80% in the event of abuse of law. Between a simple understatement, with no behavioural penalty, and a deliberate breach, the financial gap is considerable, and it is not argued on the same basis as the tax itself.
These classifications are not automatic. A deliberate breach requires the tax authorities to demonstrate intent, which opens a debate on the facts, on good faith, and on what the taxpayer could reasonably have known. Too many cases accept the surcharge as an accessory to the reassessment, when it deserves to be contested in its own right. Distinguishing the fight over the tax from the fight over the penalties, and deciding which to lead first, is among the choices that arise from the very moment of the response to the notice of proposed adjustment.
It is also on this ground that the question of a settlement with the DGFiP arises. Article L. 247 of the French Tax Procedure Code allows the tax authorities to grant, by way of settlement, a reduction of fines and surcharges as long as they are not yet final - a request that may in fact be made as early as the notice of proposed adjustment, before the tax is even collected. It does not, however, apply to the tax itself in principal: that can only be remitted on grounds of hardship or insolvency, or abandoned where the tax authorities acknowledge that the tax base was open to dispute. The principal therefore does not fall because one negotiates, but because one has established that the tax was not due. And a settlement duly concluded and performed extinguishes the dispute: it amounts to a waiver of any further challenge to what it covers. This is a trade-off, not a formality - accepting a reduction today means definitively giving up the right to contest tomorrow, and that calculation is made in light of the real strength of the case.
The question of the years concerned determines the scale of the risk. For personal income tax and corporate income tax, the tax authorities' right to reassess is in principle exercised until the end of the third year following the year in respect of which the tax is due, under Article L. 169 of the French Tax Procedure Code. This is the ordinary period, the one that frames the majority of audits.
But this period is not fixed. The same article extends the right to reassess to ten years in several situations, notably in the event of undisclosed activity or where certain assets or income held abroad and left undeclared are at issue. For wealthy or international clients, this extension changes the nature of the case: it is no longer three financial years that are exposed, but a decade. Knowing precisely which period applies to a given situation, and checking that the DGFiP is not wrongly relying on the longer one, is one of the first points to secure. This is also where the international dimension of an estate, where it exists, must be analysed without approximation, as in questions of tax residence or the regularisation of foreign assets.
This is one of the most costly misunderstandings. Contesting a reassessment does not, in itself, relieve you of paying. Once the tax has been put into recovery, it is in principle enforceable, even if the taxpayer intends to contest it. To defer that payment, a separate mechanism must be triggered: the stay of payment under Article L. 277 of the French Tax Procedure Code.
This stay is not presumed. It requires an express request, made in the administrative claim, specifying the amount or the bases of the relief sought. When duly requested, it suspends the enforceability of the debt and the limitation period for recovery until a final decision is taken. Above a certain amount of contested tax, the provision of guarantees may be required, which raises cash-flow issues better anticipated than discovered.
This claim itself is subject to deadlines that must not be allowed to lapse. Article R.* 196-3 of the French Tax Procedure Code grants the taxpayer who has been subject to a reassessment procedure a special claim period equal to the one available to the tax authorities. The DGFiP then has six months to rule, and the absence of a reply opens the way to the administrative court. Each stage - from the adversarial phase to the claim and then to the judge - connects with the previous one. A choice made at the outset closes off or preserves options for what follows, and it is this overall coherence that is difficult to rebuild once the timetable is under way.
The image of tax litigation as a courtroom battle is misleading. A significant share of cases is settled before any trial - in the discussion with the auditor, in the quality of the response to the notice of proposed adjustment, in the appeal to the hierarchical superior or the departmental interlocutor, in the way penalties are contested or a settlement is negotiated. These levers only have effect if they are used at the right time and in the right order. Once tacit acceptance has set in or a deadline has been allowed to pass, no pleading can recover them.
This is why the coordination between the tax lawyer, the accountant and, where relevant, the director's other advisers matters as much as the legal technique itself. Tax litigation is not merely a matter of knowing the texts: it consists in deciding, very early, which arguments to raise, which to hold back, and where to concentrate the effort between the tax and the penalties. This strategic reading cannot be done by skimming a registered letter on a Friday evening.
Every situation has its own room for manoeuvre, and it narrows as time passes. The purpose of a first discussion is not to resolve everything, but to identify precisely where the risk lies, which deadlines are already running, and which response best protects the interests at stake.
The outcome of a tax audit is decided from the notice of proposed adjustment onwards, not before the judge.
Lobe Law, a law firm specialising in taxation and tax litigation in Paris, reviews your situation and supports you through to the resolution of the dispute. Book a consultation.