Tax Litigation, VAT

Challenging a VAT Reassessment: deadlines, grounds, strategy

A VAT reassessment can be challenged at each stage of the procedure, but the deadlines are strict and non-extendable. You have 30 days to submit your reply to the correction notice, extended to 60 days if you make a written request before the initial deadline expires (LPF art. L. 57 and L. 11, Tax Procedure Code). You then have recourse to hierarchical review, the departmental contact point, the departmental commission for direct taxes and turnover taxes, followed by a contentious claim and, where applicable, the administrative court, the court of appeal, and the Council of State. Suspension of recovery under LPF article L. 277 allows, under certain conditions, to suspend collection throughout the dispute. The firm defends managing partners and corporate groups against VAT reassessments ranging from hundreds of thousands to several million euros.

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— En bref
Initial deadline
30 days to reply to the correction notice, extendable to 60 days on written request received by the tax authority before the initial deadline expires (LPF art. L. 57 and L. 11)
Friendly remedies
Hierarchical review (LPF art. L. 54 C or charter of audited taxpayer rights), departmental contact point, departmental commission for direct taxes and turnover taxes (CGI art. 1651 et seq.)
Contentious phase
Mandatory contentious claim (LPF art. L. 190), followed by administrative court, appeal and cassation
Suspension of recovery
Suspension of collection on express request, security required above EUR 4,500 of disputed amounts (LPF art. L. 277 and R*277-7)
Grounds
Procedural defects (reasoned notice, oral and adversarial debate) and substantive grounds (exigibility, deduction rights, territoriality, evidence)
— 01

A VAT reassessment is never final whilst the procedure is ongoing

VAT is a tightly-controlled tax, and reassessment notices can be costly: the unpaid tax accrues together with default interest and, frequently, a 40 per cent penalty for deliberate breach, sometimes up to 80 per cent. In the case of recurring transactions, a disagreement over exigibility, deduction rights or territoriality can quickly amount to hundreds of thousands, sometimes millions of euros, over three years.

The correction notice is nevertheless merely one stage. It must be reasoned in a way that enables the taxpayer to put forward his observations (LPF art. L. 57); the procedure preceding it is subject to strict safeguards, the breach of which leads to discharge of the assessments. Each subsequent stage, observations, hierarchical review, commission, contentious claim, and the court, offers a fresh opportunity to have all or part of the reassessment overturned.

The constraint is time: 30 days to reply, or risk the amendments becoming binding and the burden of proof shifting to the taxpayer. A request for extension to 60 days must reach the tax authority before the initial deadline expires. A late or inadequately argued reply compromises the entire file.

For illustration, the firm advised a distribution group where the tax authority sought 1.8 million euros in VAT reassessment coupled with a 40 per cent penalty, on the ground of withdrawal of deduction rights. Detailed observations, followed by referral to the departmental commission, led to abandonment of over 70 per cent of the reassessment even before court proceedings, with the penalty reduced to default interest alone.

The firm prioritises a limited number of cases to ensure the direct involvement of partners on each file, and systematically assesses the relevance of an engagement before proceeding.

— 02

The procedure, step by step

01

Reply to the correction notice: 30 days, extendable to 60

The reply to the correction notice is the foundation of your defence.

  • Deadline of 30 days from receipt of the correction notice (LPF art. L. 57 and L. 11)
  • Extension of 30 days, making 60 days in total, on written request received before the initial deadline expires; the Council of State holds that this is a single 60-day deadline
  • Failure to reply within the deadline renders the amendments deemed accepted and shifts the burden of proof to the taxpayer before the court
  • The reply must contest each item of reassessment, in law and in fact, and reserve procedural defects
  • The tax authority must answer the reply; if disagreement persists, its answer opens the following remedies
02

Hierarchical review and departmental contact point

Two levels of reconsideration within the tax authority, often decisive and frequently overlooked.

  • Following a book audit or examination of accounts, the charter of rights and obligations of audited taxpayers, opposable under LPF article L. 10, guarantees recourse to the auditor's superior followed by the departmental contact point
  • For amendments arising from a desk review, LPF article L. 54 C, introduced by the ESSOC Act of 10 August 2018, grants a hierarchical review within the period for bringing contentious proceedings
  • Review covers both the merits of the reassessment and the audit conditions and penalties
  • Failure to observe these safeguards, where it deprives the taxpayer of effective debate, constitutes a substantive defect warranting discharge
03

The departmental commission for direct taxes and turnover taxes

A parity consultative body with jurisdiction over VAT matters of fact.

  • Departmental or national commission established by articles 1651 et seq. of the French Tax Code, seized within 30 days of the tax authority's reply to the taxpayer's observations (LPF art. L. 59 and R*59-1)
  • Jurisdiction over turnover taxes: reconstructed turnover, factual questions relating to VAT reassessments assessed under an actual profit basis (LPF art. L. 59 A)
  • Oral debate before a parity panel presided over by a judge; the opinion, though advisory, influences the tax authority's position and the burden of proof
  • Referral suspends collection until the opinion is issued
  • Strategy to weigh: the commission is well-suited to turnover reconstructions and factual questions, less so to pure questions of law
04

The contentious claim and suspension of recovery

The mandatory step before the court, and the tool that neutralises collection during the dispute.

  • Contentious claim mandatory before the tax authority before court proceedings (LPF art. L. 190)
  • General deadline: until 31 December of the second year following collection (LPF art. R*196-1); in the event of a rectification procedure, special deadline equal to the tax authority's statute of limitations period, running from receipt of the correction notice (LPF art. R*196-3)
  • Suspension of recovery on express request in the contentious claim: exigibility and limitation are suspended until final judgment (LPF art. L. 277)
  • Security required when disputed amounts exceed EUR 4,500 (LPF art. R*277-7): bank guarantee, pledge, mortgage; offer to be submitted within 15 days of the taxing officer's request, reply within 45 days
  • If security is refused, urgent fiscal review available; absent security, the tax authority may take conservatory measures, but not enforcement measures
05

The court: administrative court, appeal, cassation

The judicial phase, up to the Council of State when the stakes justify it.

  • Referral to the administrative court within 2 months of notification of rejection of the contentious claim (LPF art. R*199-1); if the tax authority remains silent for 6 months, referral may be made without waiting
  • In the event of implicit rejection, no deadline is opposable to the taxpayer until an express decision has been properly notified (CE, opinion, 21 October 2020, No. 443327, published in the official record)
  • Appeal to the court of administrative appeal and application for cassation to the Council of State; the firm conducts VAT litigation through to cassation
  • The VAT judge applies EU law: VAT Directive, CJEU case law, preliminary ruling if necessary
06

The grounds: procedure and substance

A reassessment falls often on procedure as on the merits.

  • Procedural grounds: inadequate reasoning of the correction notice, which must enable the taxpayer to put forward useful observations (LPF art. L. 57), failure to observe oral and adversarial debate with the auditor during an on-site book audit. Add failure to observe the rights in the taxpayer's charter, opposable under LPF article L. 10, and irregularities in the commission referral. Where the defect deprives the taxpayer of a substantive safeguard, it leads to discharge, regardless of the merits
  • Substantive grounds: exigibility and the triggering event, withdrawal of deduction rights, territoriality of services and supplies, exemptions, rates, turnover reconstruction and unreasonably summary methods
  • Independent contestation of penalties: separate reasoning, absence of deliberate breach, good faith
  • Hierarchy of grounds according to stage: some defects must be raised early, others are reserved for the court
— 03

Our approach

The firm intervenes across the entire spectrum of VAT dispute work: procedure audit on receipt of the correction notice, drafting of reply observations, conduct of hierarchical reviews and commission referral, contentious claim with suspension of recovery and negotiation of security, then representation before the administrative court, court of appeal and Council of State. The firm's dual expertise in VAT and tax procedure enables us to run the technical debate on the tax and the challenge to the regularity of the audit side by side, on files where the stakes reach several million euros.

  • VAT Reassessment
  • Correction Notice
  • Suspension of Recovery
  • Departmental Commission
  • LPF art. L. 57
— FAQ

Challenging a VAT reassessment: your questions

What is the deadline for replying to a VAT correction notice?

You have 30 days from receipt of the correction notice to submit your observations (LPF art. L. 57 and L. 11, Tax Procedure Code). This deadline is extended to 60 days on written request; note that the request must be received by the tax authority before the initial deadline expires, not merely posted. The Council of State holds that this is a single 60-day deadline, not two successive periods. Failure to reply within the deadline results in the amendments becoming binding and places on you the burden of proving before the court that they are excessive.

Must I pay the VAT reassessment during the dispute?

No, if you seek suspension of recovery. The request must be made expressly in the contentious claim and specify the amount or basis of deduction sought (LPF art. L. 277, Tax Procedure Code). Exigibility of the debt and the tax authority's right of recovery are then suspended until final judgment. Where disputed amounts exceed EUR 4,500 (LPF art. R*277-7), the taxing officer will require security: bank guarantee, pledge of goodwill, mortgage. If the security offered is refused, urgent fiscal review is available to have the matter determined by the court.

Does the commission have jurisdiction over VAT?

Yes, within the scope defined by LPF article L. 59 A. The departmental commission for direct taxes and turnover taxes (CGI art. 1651 et seq.) may be seized, within 30 days of the tax authority's reply to your observations, of disagreements over the reconstructed turnover determined under an actual profit basis, that is to say the factual questions that underpin VAT reassessments, in particular turnover reconstructions. Referral suspends collection, and whilst the opinion is advisory, it weighs on the subsequent conduct of the file.

Which procedural defects lead to discharge of a VAT reassessment?

Commonly upheld defects are inadequate reasoning of the correction notice, which must allow the taxpayer to put forward useful observations (LPF art. L. 57, Tax Procedure Code), and failure to observe oral and adversarial debate with the auditor during an on-site book audit. Added to these are the failure to observe the rights guaranteed by the charter of audited taxpayers, opposable under LPF article L. 10, and irregularities in the commission referral. Where a defect has deprived the taxpayer of a substantive safeguard, it leads to discharge of the assessments, independent of any debate on the merits.

What are the deadlines for bringing proceedings before the administrative court?

Court proceedings require a prior contentious claim before the tax authority (LPF art. L. 190, Tax Procedure Code), to be filed by 31 December of the second year following collection (LPF art. R*196-1), or within the special deadline equal to the tax authority's statute of limitations period where you have been subject to a rectification procedure (LPF art. R*196-3). If the tax authority issues an express rejection, you have 2 months to refer the matter to the administrative court (LPF art. R*199-1). If the tax authority remains silent for 6 months, you may refer the matter without waiting; in the event of implicit rejection, no deadline is opposable to you until an express decision has been properly notified (CE, opinion, 21 October 2020, No. 443327).

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