A new trust-based relationship between companies and tax authorities: strong initiatives

On Thursday 14 March 2019, the Minister of the Budget revealed a set of immediately effective initiatives that may radically overhaul relationships between companies and the tax authorities.

Time will tell whether the revolution will indeed take place, but the introduction of several initiatives should cause companies to take stock and determine which initiatives they might usefully implement, particularly in a context where the increased penalisation of taxpayers and the proliferation of anti-abuse rules is leading to a lack of legal certainty surrounding their transactions and management decisions.

Seven initiatives have been revealed as part of this new trust-based relationship, some of which are more developed, while others require further clarification:

1. A partnership between the tax authorities and mid-cap/ large-cap companies: taking the form of an agreement, the tax authorities, in exchange for greater transparency from the company, would commit to taking a position, in the form of an advance ruling issued within three months, on tax issues that are at stake or at risk chosen by mutual agreement, while other areas would remain potentially subject to tax audits. A specific department at the DGE (large company division) would be in charge of this partnership.

2. Personalised tax support for SMEs: a company would have a single contact point, who would be responsible for issuing a written opinion on the tax issues identified with the company.

3. An adjustment team for companies at the DGE (circular of 28 January 2019): this team will have the authority to deal with unsolicited requests to carry out adjustments relating to tax anomalies discovered by new owners or buyers of a company, or concerning certain international tax issues (existence of a permanent establishment in France, deduction of a loan granted by a foreign company, arrangements involving entities outside France), questions relating to the taxation of directors (the “Dutreil” scheme, capital gains on the sale of securities, impatriates) or transactions that may result in an 80% surcharge being applied. The department will apply a pre-established and non-negotiable scale of reduced penalties.

4. An increased focus on advance rulings: as the single entry point for requests for advance rulings made to the central authorities, the Legal Department of the French Tax Administration (“FTA”) would commit to issuing a response within three months to 80% of requests and would routinely publish its answers.

5. Support for companies operating outside France: companies and the FTA would regularly provide each other with information and consult with each other, and a team at the FTA, attached to the Legal Department, would provide support to companies encountering difficulties outside France.

6. Improvements in dialogue and appeals in connection with tax audits: appeals to higher bodies would be accelerated; communications would, wherever possible, be carried out by a collegiate body at least one of the members of which would have no previous knowledge of the case; any matters that have been verified and that have not given rise to a tax adjustment would be identified, which would constitute a tax guarantee for the future.

7. Tax compliance reviews may be carried out by an auditor.

This plan is ambitious. This is undoubtedly a positive step in developing constructive relationships with the tax authorities (even if the initiatives relating to tax audits need to be clarified and enhanced so that they have real force). However, significant levels of human resources will need to be allocated to these initiatives by the FTA and companies will need to change their approach to tax governance.