The French Finance Act for 20251 introduced a new procedure for the control of tax credits and withholding taxes. This measure is aimed at enhancing accuracy and compliance by implementing more rigorous checks. The French tax administration has confirmed verbally that it is now applying the measure to tax returns it receives for processing.2
WHY THIS MATTERS
Article 60 of the French Finance Act for 2025 established a framework for a more detailed verification of tax credits claimed by taxpayers, establishing that only eligible claims are approved. The Article outlines the framework of the measure and stresses the importance of accurate reporting.
The provision will have wide ranging implications for assignees to France.
Context
For several years, the French administration has engaged in a practice that lacked an explicit legal basis. This involved not processing certain tax returns, if these showed that a refund was due, until the taxpayer submitted specific information and supporting documents. This approach resulted in delays in the processing of tax returns and refunds. In effect, the practice was akin to an informal tax audit without providing the guarantees afforded to taxpayers in the case of a formal audit.
New Formal Document-Based Audit before the Processing of a Tax Return
The 2025 Finance Act has now formalised this procedure by establishing a document-based audit process for tax credits and withholding taxes reported on income tax returns. Under this new rule, if the tax administration questions the validity of a tax credit or the amounts declared as withholding tax, it can require the taxpayer to furnish the necessary supporting documents before processing the return.
If the taxpayer does not respond within 30 days or if the tax authorities deem the supporting documents insufficient, the tax bill will be issued without considering the tax credits or withholding taxes reported on the return. This will result in a higher amount of tax being demanded by the French tax administration.
The taxpayer may then submit a formal claim, but since the claim may take a while to be processed, the absence of a timely response to the initial request could result in a negative cash-flow impact.
KPMG AVOCATS INSIGHTS
Employers are advised to reach out to their usual qualified tax professional to discuss how this may impact their assigness and to consult with them should they need assistance dealing with this new obligation. They may also contact a member of the tax team with KPMG Avocats in France (see the Contacts section).
FOOTNOTES:
1 LOI n° 2025-127 du 14 février 2025 de finances pour 2025 (1), published in JORF n°0039 du 15 février 2025.
2 Private discussions between KPMG Avocats Team members and Tax Administration officials.
Contacts
Disclaimer
The information contained in this newsletter was submitted by the KPMG International member firm in France.
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