Tax-consolidated group: the information letter sent to the parent company does not require hierarchical approval

In a ruling handed down on June 30, the Conseil d'Etat (the highest administrative court in France) states that when a member of a fiscally integrated group is subject to an accounting audit, the reassessment is claimed from the parent company and not from the company concerned. The Conseil d'Etat also specifies that the letter of information on duties, penalties and interest for late payment sent to the parent company does not have to be validated by a hierarchical superior.

The facts

In this case, the parent company of a tax-consolidated group was informed by a proposed rectification of the corporate income tax reassessments for the 2011 financial year, to which a penalty of 158,843 euros for deliberate non-compliance had been added. In 2015, the tax authorities sent a letter informing the parent company of the impact of the reassessments on overall income. The parent company criticized the tax authorities for failing to have the information letter endorsed by a category A official with at least the rank of divisional inspector.

The company had applied to the administrative court for discharge of the additional corporate income tax and social security contributions to which it had been subject for two financial years, as well as the corresponding penalties. The Administrative Court of Appeal dismissed the company's appeal against the Administrative Court's decision rejecting its claim.

In the end, the Conseil d'Etat disagreed with the parent company, ruling that the letter sent by the tax authorities did not reflect a decision to apply the penalties.

Accounting audits and penalties: the administration's obligations

Theruling of June 30, 2023 highlights two obligations incumbent on the tax authorities in the context of reasoned tax penalties within the meaning of the law of July 11, 1979. In particular, prior to notification of the tax assessment notice, the tax authorities must send the parent company or public establishment concerned a document indicating the amount of tax, penalties and late payment interest due. The tax authorities are also obliged to impose tax penalties within 30 days of notification of the document informing the taxpayer of the penalty they intend to apply. In accordance witharticle L 80 E of the Book of Tax Procedures, the decision to impose fines or surcharges is taken by a category A official holding at least a grade set by decree.

The Conseil d'Etat has issued a reminder of the tax authorities' obligations when imposing tax penalties, and of the grade required before such penalties can be imposed on a member of a fiscally integrated group. Since the letter issued by the tax authorities does not constitute a decision to apply these penalties, the parent company cannot contest it on the grounds that it had to be endorsed by the hierarchy.