The personal tax-situation review (ESFP)
The ESFP is the in-depth tax audit of individuals: the tax authorities compare your declared income with your standard of living, your assets and your bank flows. It is a strictly regulated procedure, backed by strong safeguards, but one where an imprecise reply can lead to an ex officio assessment. The firm assists you from the notice of review through to closure.
- Framework
- Personal tax-situation review (French Book of Tax Procedures, LPF art. L. 12)
- Who
- Individuals, with regard to income tax
- Duration
- Limited to one year from receipt of the notice (LPF art. L. 12)
- Method
- Consistency of income / standard of living / bank flows; cash-position analysis
- Risk
- Ex officio assessment where no reply is given (LPF art. L. 69)
What is an ESFP?
The personal tax-situation review (LPF art. L. 12) allows the tax authorities to check the overall consistency between the income you have declared and your asset position, your standard of living and your available funds. It targets individuals with regard to income tax.
In practice, the auditor reconstructs your flows from your bank statements and draws up a cash-position analysis: if the recorded spending and savings exceed the known income, the gap must be justified.
The process, step by step
The review opens with a notice (LPF art. L. 47) accompanied by the taxpayer’s charter, and follows a precise sequence:
- Notice of review, charter delivered, right to be assisted by the counsel of your choice;
- Production of bank statements: since 1 January 2023, the notice lists the known accounts whose statements the tax authorities request from the banks; you remain free to produce yourself the list of the accounts not mentioned in the notice and their statements, within sixty days of the tax authorities' request. Failing that, the one-year period is extended by the time the tax authorities need to obtain these statements from the banks (LPF art. L. 12);
- Requests for clarification and supporting evidence on the points of inconsistency (LPF art. L. 16);
- Adversarial dialogue, then an adjustment notice where appropriate.
The review may in principle not extend beyond one year from receipt of the notice (LPF art. L. 12), a period that may be extended in limited cases.
ESFP: the key figures
| Item | Value | Source |
|---|---|---|
| Maximum duration of the ESFP | 1 year (raised to 2 years in the event of undisclosed activity) | LPF art. L. 12 |
| Reply to a request for supporting evidence | 2 months minimum; if your reply is deemed insufficient, formal notice to complete it within 30 days | LPF art. L. 16 A |
| Statements of unlisted accounts | 60 days from the request of the tax authorities (an option; failing that, the one-year period is extended) | LPF art. L. 12 |
| Reply to the adjustment notice | 30 days, extendable by 30 days on a request received by the tax authorities before the initial period expires | LPF art. L. 11; LPF art. L. 57 |
| In case of ex officio assessment | No 30-day reply period: the tax bases are notified to you at least 30 days before collection, and the direct tax commission may be seized | LPF art. L. 76 |
| Reassessment period (limitation) | 3 years, raised to 10 years (undisclosed activity, false tax domicile abroad, reporting obligations on foreign accounts and assets not complied with, unless the credit balances of the foreign accounts did not exceed €50,000) | LPF art. L. 169 |
| Late-payment interest | 0.20% per month (2.4% per year) | French Tax Code art. 1727 |
| Surcharge (deliberate default; manoeuvres or abuse) | 40%; 80% | French Tax Code art. 1729 |
| National volume of ESFPs | around 3,600 per year (source DGFiP, 2017) | DGFiP |
ESFP, desk review and accounts audit
Not to be confused: the ESFP targets individuals, the accounts audit targets businesses.
| Criterion | Desk review | ESFP | Accounts audit |
|---|---|---|---|
| Target | All taxpayers | Individuals (income tax) | Professionals and businesses |
| Purpose | Consistency of returns, from the office | Consistency of income / standard of living / assets | The business’s accounts |
| Legal basis | LPF art. L. 10 | LPF art. L. 12 | LPF art. L. 13 |
| Capped duration | No (within the reassessment period) | 1 year, on pain of nullity | 3 months for small businesses (L. 52) |
Your safeguards
The ESFP is surrounded by safeguards whose breach may vitiate the procedure: prior information through the notice (which must state, on pain of nullity, the right to be assisted by counsel), delivery of the charter enforceable against the tax authorities, oral and adversarial debate, and the duration limit. Requests for supporting evidence (LPF art. L. 16) must relate to precise items and allow you a time to reply that cannot be less than two months (LPF art. L. 16 A).
On completion of a concluded ESFP, an often decisive safeguard applies: the tax authorities may no longer increase your overall income for the same period and the same tax (LPF art. L. 50; BOI-CF-PGR-30-30), unless you provided incomplete or inaccurate items, a tax-evasion flagrancy report was drawn up for a later period, or in the cases of articles L. 188 A and L. 188 B. The tax authorities must in addition notify you of the results of the review, even where there is no rectification (LPF, art. L. 49).
The executive facing the ESFP
In practice, the ESFP of an executive often follows the accounts audit of the executive's company. The company's reassessments have consequences for personal income: profits not placed in reserve and sums placed at the disposal of shareholders that are not taken from profits are treated as distributed income (Tax Code, art. 109), and in particular, unless proved otherwise, advances and loans granted to shareholders, as well as hidden remuneration and benefits (Tax Code, art. 111, a and c). These consequences may be notified without an ESFP; the tax authorities nevertheless frequently open an ESFP to cross-check the executive's personal accounts, shareholder current accounts and standard of living.
The ESFP concerns the tax household, with regard to income tax (LPF, art. L. 12). On pain of nullity of the assessment, it may not extend beyond one year from receipt of the notice of review, save the extensions provided by the same article (additional time granted at your request, 30-day formal notice, account statements not produced within sixty days, information requested abroad); it is raised to two years where undisclosed activity is discovered or where the tax authorities use, within the one-year period, articles L. 82 C or L. 101 of the LPF.
- Requests for supporting evidence: the tax authorities may send you one when they have gathered elements showing that you may have higher income than declared, in particular where the credits to your accounts represent at least twice your declared income or exceed it by at least €150,000; they may also request justification of your assets or income from assets abroad (LPF, art. L. 16). The requests must state explicitly the points concerned.
- Reply period: at least two months; if the reply is deemed insufficient, formal notice to complete it within thirty days (LPF, art. L. 16 A).
- Ex officio assessment: if you fail to reply to a request for clarification or justification under article L. 16, you are assessed ex officio to income tax (LPF, art. L. 69), an insufficient reply being treated as no reply after the formal notice; the burden of proof then shifts to you.
- Cash-position analysis: the auditor compares opening liquidity and known resources with the uses recorded (spending, investments, repayments). An unexplained gap founds the request for justification; methodological errors (double counting, transfers between your own accounts, omitted opening liquidity) are argued with supporting documents.
- Shareholder current account: a transfer received from the company may correspond to the repayment of a credit current account, not to income; it is justified by the company's accounts and the entries of the account. Conversely, a debit current account may be regarded as an advance constituting distributed income (see our page on the debit shareholder current account).
- Remuneration: the part of remuneration not deductible for the company (Tax Code, art. 39, 1, 1°), typically the part judged excessive, constitutes distributed income (Tax Code, art. 111, d).
Your remedies during the review: the charter of the rights and obligations of the audited taxpayer, enforceable against the tax authorities (LPF, art. L. 10), allows you to seize the auditor's hierarchical superior, then the contact person designated by the director, in case of difficulty during the audit operations and, after the reassessment proposal, on the reassessments maintained (BOI-CF-PGR-20-10, § 320). The assistance of a lawyer from the notice onwards makes it possible to coordinate the defence of the company and that of the executive, which often rest on the same documents. Where foreign accounts are involved, see also regularising foreign accounts.
Pitfalls to avoid
The main risk is ex officio assessment: failing a reply within the time allowed to a request for supporting evidence, the tax authorities may assess the unexplained sums ex officio (LPF art. L. 69). If your reply is deemed insufficient, they must first send you a formal notice to complete it within thirty days (LPF art. L. 16 A): this period is short and its expiry opens the ex officio assessment. If you are assessed ex officio, there is no thirty-day period to reply to a reassessment proposal: the tax bases are notified to you at least thirty days before collection and the direct tax and turnover tax commission may be seized (LPF art. L. 76). The most frequent points of attention:
- Unjustified bank credits (family loans, sales, repayments);
- Support and gifts to be documented;
- Foreign-source accounts or income to be reported (see regularising your foreign accounts);
- Time limits to reply to requests for supporting evidence, and the thirty-day period of the formal notice to complete an insufficient reply, never to be missed.
The ESFP: your questions
How long does an ESFP last?
In principle one year at most from receipt of the notice of review (LPF art. L. 12), with limited cases of extension. The period is thus extended by the time the tax authorities need to receive the reply of foreign authorities where you may have had income abroad or coming directly from abroad, by the thirty days of the formal notice to complete your reply (LPF art. L. 16 A) and by the time needed to obtain the statements of the accounts you did not produce within sixty days of the request.
Can the tax authorities consult my bank accounts?
Yes. The notice of review lists the accounts known to the tax authorities whose statements they request from financial institutions; within sixty days of the request you may produce yourself the list and statements of the other accounts (LPF art. L. 12). The auditor then draws up a cash-position analysis to check consistency with your declared income.
What happens if I do not reply to a request for supporting evidence?
Failing a reply within the time allowed, which cannot be less than two months, the tax authorities may assess the sums left unexplained ex officio (LPF art. L. 69). If you replied but the reply is deemed insufficient, they must first send you a formal notice to complete it within thirty days (LPF art. L. 16 A): ex officio assessment is open only once that period has expired. Hence the importance of replying within the time limits, with supporting documents.
How do I justify a transfer received in my account?
By any probative and contemporaneous document: registered loan agreement, deed of gift, evidence of sale, cross-referenced statements. The quality and dating of the supporting documents are decisive.
Should I be assisted during an ESFP?
It is strongly recommended. The lawyer secures the procedure, checks compliance with the safeguards, structures the replies to requests for supporting evidence and, where appropriate, pursues the challenge before the tax courts. The exchanges are covered by professional secrecy.
Why an ESFP after the audit of my company?
Because the company's reassessments often translate, for the executive and shareholder, into income deemed distributed (Tax Code art. 109 and 111), and the tax authorities then want to cross-check personal accounts, shareholder current accounts and standard of living. This distributed income may be notified without an ESFP; the ESFP also allows the tax authorities to request justification of all the bank credits of the household (LPF art. L. 16). The two procedures are prepared together.
Can I challenge the conduct of the review before the reassessment proposal?
Yes. The charter of the rights and obligations of the audited taxpayer, enforceable against the tax authorities (LPF art. L. 10), allows you to seize the auditor's hierarchical superior, then the contact person designated by the director, in case of difficulty during the audit operations, and again after the reassessment proposal on the reassessments maintained. The tax authorities themselves describe this option as a substantive safeguard (BOI-CF-PGR-20-10, § 320): being deprived of it may vitiate the assessment procedure.
An ESFP under way or announced?
A confidential initial consultation to prepare your replies, secure your supporting documents and have your safeguards respected throughout the review.
This page presents the ESFP for information purposes; each matter calls for a specific analysis. References to the French Book of Tax Procedures in force at the date of writing.