As tax returns filed by companies are not always free from irregularities, the tax authorities are innovating by introducing a preventive system to limit such errors and foster a climate of trust between company stakeholders. This is the tax compliance examination (ECF). What is the ECF and why is it important? Who can do this? What are the terms and scope? How does ECF limit the risk of tax reassessment? We take stock of these questions!
Following the law for a State at the service of a society of trust and the measures linked to the 2018 “Right to Error”, known as the ESSOC law, the tax compliance review, or ECF applicable from financial years ending on 12/31/2020, appeared at the beginning of 2021.
Following the law for a State at the service of a society of trust and the measures linked to the 2018 “Right to Error”, known as the ESSOC law, the tax compliance review, or ECF applicable from financial years ending on 12/31/2020, appeared at the beginning of 2021.
What is an ECF?
A tax compliance review is a “contractual service whereby, at the request of a company, a service provider undertakes, in complete independence, to give an opinion on the compliance with tax rules of the points set out in an audit path and in accordance with a set of specifications”. In other words, the Tax Compliance Review lets you call on a tax professional to check tax compliance on the most frequently audited points, according to a precise work schedule. This tax compliance examination covers 10 points:
- Compliance of the accounting entries file
- FEC accounting quality
- The tax system
- Cash register software certification.
- Input and output VAT
- Depreciation and amortization
- Provisions
- Accrued expenses
- Exceptional expenses
- Document storage method
The following conclusions can be drawn from the tax compliance review:
- Provision of an audit report covering the entire audit process
- No conclusion issued by the service provider
- Conclusions relating only to certain points on the audit trail
It is up to the company director to decide whether or not to pass on the conclusions of the ECF to the tax authorities. However, if the engagement report is not sent to the DGFIP before October 31 N+1 for a financial year ending on 12/31/N (or 6 months after the filing of the tax return), the company will not be able to benefit from the advantages offered by the ECF in the event of a tax reassessment.
What are the advantages of an ECF for my company?
Tax compliance reviews help build a relationship of trust between tax authorities and companies. By carrying out a tax compliance review, companies benefit from greater tax security and are less likely to be subject to a tax audit. This is because, by carrying out an ECF, the company is demonstrating its good faith and commitment to compliance. ECF also offers direct benefits:
- If the auditor finds an irregularity and the company follows his recommendations, it will be exempt from penalties and interest on arrears in the event of a tax audit on these matters.
- If one of the points audited leads to a tax reassessment during an audit, the company is also exempt from penalties and interest on late payment on the amount of the reassessment, and can also claim a refund of the fees received in connection with the ECF.
Be careful! ECF is in no way an exemption from tax obligations!
Who should I contact for a Tax Compliance Review?
Performing this examination is mainly the responsibility of accountants:
- Chartered Accountant
- Statutory Auditor
- Lawyer
- Chartered Management Organization (OGA)
How do I do a Tax Compliance Examination?
As far as eligibility for an ECF is concerned, there are no restrictions on companies belonging to a given category. So, regardless of sales level, tax regime or legal status (sole proprietorship or company), all businesses can opt for a tax compliance review. A contract must be signed between the company and the service provider (independent third party). The engagement letter must include in particular :
- The rights and obligations of each party, including a resolutory clause for non-performance of the contract
- List of inspected points
- The fiscal period covered by this audit
- Service provider’s fees
In Brief
Despite a name that may sound frightening at first glance, the Tax Compliance Examination is a genuine opportunity for companies and executives who want to have an informed opinion on their tax compliance, limitating recovery risks for their business, and avoid any penalties and late interest on tax reminders.
The service provider is an expert in the field and is liable for any fees received, which must be reimbursed in the event of omission or error on his part.
The tax compliance review is not a compulsory procedure, but it does demonstrate the company’s good faith in meeting its obligations to the tax authorities.
Decree no. 2021-25 of January 13, 2021 creating a tax compliance examination
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