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France FEC

Article 11 of the Third Amended Finance Bill for 2012 enacted in December 2012 requires taxpayers who keep their accounts electronically to remit to the tax authorities at the beginning of a tax audit all their accounting records electronically for the financial years under audit, in the form of an accounting entry file (AEF).
The new rule applies for tax audits opened on or after 1 January 2014, meaning that taxpayers may have to remit an AEF for each financial year still open for audit by then (i.e., financial years 2011, 2012 and 2013 as well as prior financial years in which a loss was incurred and was offset against income of one the above mentioned financial years).
The AEF will substantially impact not only the audit procedure itself, but also day to day account-keeping requirements. A decree published on 1 August 2013 provides details on the content and format requirements of the AEF.

For each accounting entry composing an AEF the decree lists eighteen data fields which must be included, notably the date and number of each entry, its French GAAP account number and title, and the date and reference of the supporting document. The decree provides for format specifications, and requires the AEF to match with the figures reported in the corporate income tax returns.

Applicable penalties
Taxpayers who fail to provide a compliant AEF upon the opening of a tax audit will be subject to a penalty of 0.5% of gross revenues per tax period (as adjusted by any tax reassessments), with a minimum penalty of €1,500.
Moreover, starting with 2014, if taxpayers refuse to provide an AEF, they could be subject to a unilateral tax assessment based on any information and data available to the French Tax Authorities (thus rejecting non-AEF compliant books
and records) and to additional fines that may reach 100% of the amounts reassessed (penalty for “obstruction to tax audit”).

Action required before 1 January 2014
Taxpayers have a very short period of time to comply with this new requirement.
In order to do so, they must audit and re-design their IT systems.
They must also prepare accounting, tax and IT teams for the implementation of a periodical AEF generation process, which may be complex to deploy if the company uses more than one accounting system, under different GAAP

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