Tax Compliance Review – FCE

As the tax declarations made by companies are not always free of irregularities, the tax authorities are innovating by setting up a preventive system to limit these errors and promote a climate of trust between the company’s stakeholders. This is the tax compliance review (TCR). What is the ECF and what is its interest? Who is entitled to do so? What are the modalities and scope? How does the ECF limit the risk of a tax audit? We take stock of these questions!

Following the law for a State at the service of a trustworthy society and the measures related to the “Right to Error” of 2018, known as the ESSOC law, appeared at the beginning of 2021 the tax compliance review, or ECF applicable as of the fiscal years ended on 31/12/2020.

What is an ECF?

The tax compliance review is a “contractual service whereby a service provider undertakes, at the request of a company, to give an independent 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 allows you to call on a professional accountant to verify tax compliance on the most frequently audited points according to a specific work scheme. This tax compliance review covers 10 points:

• Compliance of the accounting records file
• The accounting quality of the FEC
• The tax system
• Certification of cash register software.
• Input VAT and output VAT
• Depreciation
• Provisions
• Accrued liabilities
• Exceptional expenses
• The method of retaining records

The tax compliance review may result in the following findings:

• The provision of the mission report covering the entire audit path
• The absence of a conclusion issued by the provider
• Findings on only certain points of the audit path

It is the entrepreneur who decides whether or not to forward the findings of the ECF to the tax authorities. Nevertheless, if the mission report is not sent to the DGFIP before 31 October N+1 for a financial year ending on 31/12/N (or 6 months after the filing of the tax return), the company will not be able to benefit from the advantages provided by the ECF in the event of a tax adjustment.

What are the advantages of an ECF for my company?

The tax compliance review builds trust between the tax authorities and businesses. By carrying out a tax compliance review, companies benefit on the one hand from better tax security and on the other hand they are less often subject to a tax audit. This is because by conducting an FCE, the company is demonstrating its good faith and commitment to compliance. On the other hand, the ECF also has direct benefits:

• If the auditor finds an irregularity and the company follows his recommendations, it will be exempted from penalties and default interest in the event of a tax audit on these matters.
• If one of the audited items leads to a tax reminder during an audit, the company is also exempt from penalties and interest on the amount of the adjustment, and can also claim a refund of the fees received in connection with the ECF.

Be careful! The ECF is in no way an exemption from tax obligations!

Who should I contact to have a Tax Compliance Review carried out?

The performance of this examination is mainly the responsibility of the accountants:

• Chartered Accountant
• Statutory Auditor
• Lawyer
• Chartered Management Organization (CMO)

How to do a Tax Compliance Review?

With regard to eligibility for an ECF, there are no restrictions on companies belonging to a particular category. So, regardless of the level of turnover, the tax regime and the legal status (sole proprietorship or company), all companies can opt for a tax compliance review. It is necessary to conclude a contract between the company and the service provider (independent third party). The engagement letter must include, among other things:

• The rights and obligations of each party, including a resolutory clause for non-performance of the contract
• The list of points checked
• The fiscal period covered by this audit
• The provider’s fees

In Brief

Despite a name that may sound scary at first, the Tax Compliance Review is indeed a opportunity for companies and managers who wish to have an informed opinion on their tax compliance, theimitate the risk of tax adjustments for their business and avoid possible 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 returned in the event of omission or error on his part.
The tax compliance review is not a mandatory step, but it allows to demonstrate the good faith of the company towards the tax authorities on the respect of its obligations.

Decree No. 2021-25 of January 13, 2021 establishing the tax compliance review