ESFP: Examination of Personal Tax Situation Explained
The Examen de Situation Fiscale Personnelle (ESFP) is a specific tax audit procedure that the tax authorities can initiate against individual taxpayers. This procedure enables the tax authorities to examine your entire personal tax situation over a given period, including your income, bank accounts and assets. Unlike other forms of tax audit, the ESFP focuses exclusively on your personal income and private assets, in the context of direct taxation. You need to understand what’s at stake in this procedure to better defend yourself.
What is ESFP?
The ESFP is a tax audit procedure codified in article L12 of the Livre des Procédures Fiscales. The tax authorities check the consistency between your declared income and your actual lifestyle. This procedure applies only to individuals, never to companies or professionals in the course of their business.
The auditor analyzes your tax returns, bank statements, real estate and securities acquisitions. He or she seeks to identify any discrepancies between your declared resources and your actual expenses. The ESFP can cover a maximum of three tax years, except in cases of extended tax statute of limitations.
Triggering and running the ESFP
Examination notification
The tax authorities must send you a notice of audit before the ESFP begins. This document expressly mentions the nature of the audit, the years concerned and your rights. You have a minimum period of time before the first meeting with the auditor. Notification must comply with strict formalities, otherwise the procedure will be null and void.
The auditor cannot come to your home without this prior notification. You have the right to be assisted by counsel of your choice, including a tax lawyer. This assistance is a major asset in defending your interests.
Practical inspection procedure
The ESFP generally takes place at your home or on the premises of the tax authorities. The auditor asks you to produce various documents: bank statements, proof of assets, loan contracts, donations received. You must respond to the requests within the allotted time, generally 60 days.
The total duration of the ESFP may not exceed one year from receipt of the audit notice. This limitation protects the taxpayer against lengthy audits. The auditor may, however, extend this period in certain exceptional circumstances.
The tax authorities must send you a notice of audit before the ESFP begins. This document expressly mentions the nature of the audit, the years concerned and your rights. You have a minimum period of time before the first meeting with the auditor. Notification must comply with strict formalities, otherwise the procedure will be null and void.
The auditor cannot come to your home without this prior notification. You have the right to be assisted by counsel of your choice, including a tax lawyer. This assistance is a major asset in defending your interests.
The ESFP generally takes place at your home or on the premises of the tax authorities. The auditor asks you to produce various documents: bank statements, proof of assets, loan contracts, donations received. You must respond to the requests within the allotted time, generally 60 days.
The total duration of the ESFP may not exceed one year from receipt of the audit notice. This limitation protects the taxpayer against lengthy audits. The auditor may, however, extend this period in certain exceptional circumstances.
Reconstruction methods used
There are two main methods used by the tax authorities to assess your actual income during an ESFP. The bank credit method analyzes all sums credited to your bank accounts, including current accounts, savings books and securities accounts. The auditor adds up all the credits for the year, and deducts those for which you provide proof of non-taxable origin. The lifestyle method reconstitutes your income on the basis of your actual expenses and the evolution of your assets, using a flat-rate scale of personal expenses.
These methods have their limits and presumptions, which you can contest with precise arguments. The auditor must take into account your explanations and documented evidence. Amounts derived from gifts, inheritances, family loans or repayments are not taxable income and must be excluded from the reconstitution. You must systematically provide proof of the origin of these funds in the form of documentary evidence, such as notarized deeds, certificates and the lender’s bank statements.
Outcome of the ESFP and possible appeals
Proposal for rectification
If the auditor identifies any discrepancies, he will send you a proposal for rectification. This document sets out the proposed adjustments, the reasons for them and the applicable penalties. You have 30 days in which to formulate your observations and contest the adjustments.
The rectification proposal must be sufficiently reasoned to enable you to understand the reasons for the increase. Insufficient justification may invalidate the procedure. You must analyze each element carefully and rigorously.
Avenues of appeal
There are several ways in which you can contest the tax adjustment proposal. The response to the observations is the first stage in the dialogue with the tax authorities. If the disagreement persists, you can refer the matter to the departmental direct tax commission.
If the amicable phase fails, tax litigation before the administrative court is still an option. The assistance of a specialized tax lawyer will maximize your chances of success. Deadlines for appeals must be scrupulously respected, otherwise the case will be foreclosed.
If the auditor identifies any discrepancies, he will send you a proposal for rectification. This document sets out the proposed adjustments, the reasons for them and the applicable penalties. You have 30 days in which to formulate your observations and contest the adjustments.
The rectification proposal must be sufficiently reasoned to enable you to understand the reasons for the increase. Insufficient justification may invalidate the procedure. You must analyze each element carefully and rigorously.
There are several ways in which you can contest the tax adjustment proposal. The response to the observations is the first stage in the dialogue with the tax authorities. If the disagreement persists, you can refer the matter to the departmental direct tax commission.
If the amicable phase fails, tax litigation before the administrative court is still an option. The assistance of a specialized tax lawyer will maximize your chances of success. Deadlines for appeals must be scrupulously respected, otherwise the case will be foreclosed.
Differences between ESFP and accounting audits
The ESFP is fundamentally different from a tax audit. A taxpayer engaged in a professional activity may simultaneously undergo an ESFP (personal sphere) and an accounting verification (professional sphere), these procedures remaining legally distinct with different guarantees. The ESFP can never call into question the professional results declared in the context of an activity, as this is the exclusive competence of the accounting verification.
| Criteria | ESFP | Accounting verification |
|---|---|---|
| Scope of application | Individuals only (private sphere) | Professionals and companies (professional activity) |
| Control method | Analysis of assets and lifestyle | Examination of accounting entries and supporting documents |
| Taxes concerned | Income tax, wealth tax, social security contributions | All business taxes (IS, VAT, CFE, etc.) |
| Taxpayer guarantees | Specific ESFP rights (article L12 LPF) | Audited taxpayer’s charter |
| Place of inspection | Home or administration premises | Business premises or accounting firm |
Defense strategies in the face of an ESFP
Preparation is your best weapon against an ESFP. Gather all evidence of your income and expenses as soon as you receive the notice of audit. Document the origins of your funds: inheritances, donations, family loans, extraordinary income.
Never sign a document without reading it carefully and consulting your advisor. Every response to the auditor must be thought through and supported by evidence. The assistance of a tax law professional can help you avoid costly strategic errors. Precise knowledge of the tax authorities’ recovery periods also protects your rights.
Anticipating and preventing an ESFP
The best defense is prevention. Systematically keep proof of all your income and major expenses. Document the origins of your funds, particularly donations and family loans, in writing. Rigorous management of your tax documents will greatly facilitate your defense in the event of an audit.
Make sure that your tax returns accurately reflect your actual situation, including your actual deductible expenses. Flagrant inconsistencies between your lifestyle and your declared income attract the attention of the tax authorities. Spontaneous regularization before any tax audit considerably reduces the risk of penalties. The ESFP remains a regulated procedure, and you can defend yourself effectively with adequate preparation and appropriate legal support.
Frequently asked questions
The Examen de Situation Fiscale Personnelle raises many questions for the taxpayers concerned. Here are the answers to the most frequently asked questions to help you better understand this tax audit procedure.
What is the ESFP (Examen de Situation Fiscale Personnelle)?
The ESFP is a tax audit procedure that enables the tax authorities to examine the consistency between a taxpayer’s assets and liabilities and his or her declared income. It is a documentary audit of the taxpayer’s entire personal tax situation. The tax authorities check whether the taxpayer’s lifestyle, acquisitions and expenses correspond to declared income, without visiting the taxpayer’s home.
Who is eligible for a Personal Tax Status Examination?
Any individual taxpayer may be subject to an ESFP. The tax authorities generally select files with apparent inconsistencies between declared income and assets or lifestyle. Criteria include major acquisitions (real estate, luxury vehicles), high expenses, or alerts arising from the right of communication. Individuals in certain professions or with international activities may also be targeted.
How does an ESFP work and how long does it last?
The ESFP begins with a notice of audit sent to the taxpayer, followed by a request for clarification or justification. The taxpayer has at least two months to respond. The examination covers a period not exceeding three years. During the procedure, the tax authorities may ask for explanations of the origin of funds, acquisitions of assets and major expenditures. The total duration varies according to the complexity of the case and the taxpayer’s responsiveness.
What documents must be prepared for an ESFP?
To respond effectively to an ESFP, the taxpayer must assemble a number of documents: bank statements, proof of property acquisition (notarized deeds, invoices), proof of income (salary slips, tax notices), proof of loans or donations, documents relating to financial investments, and any element proving the lawful origin of the funds used. Complete, organized documentation makes it easier to process your case, and reduces the risk of tax adjustments.
What are your rights during a Personal Tax Examination?
During an ESFP, taxpayers benefit from several fundamental rights: the right to be assisted by counsel of their choice (tax lawyer, chartered accountant), the right to obtain additional time in the event of difficulty in assembling supporting documents, the right to be informed of the reasons for and nature of the audit, and the right to present their observations. In the event of disagreement, the taxpayer can contest the rectification proposals within the legal time limits, and assert his or her rights to tax justice.
What are the possible consequences of an ESFP?
The ESFP can lead to different outcomes. If the justifications are satisfactory, the tax authorities close the file with no further action. On the other hand, if inconsistencies persist, a tax reassessment may be issued, with tax reminders, surcharges and interest for late payment. In serious cases, penalties for wilful misconduct (40%) or fraudulent maneuvers (80%) may apply. Criminal prosecution for tax fraud is also possible in the most serious cases.
Where can I find out more about tax procedures?
To find out more about ESFP and other tax audit procedures, you can consult our Altertax Avocats blog, which features numerous articles and analyses of tax news. Our experts regularly share their advice and expertise to help you manage your tax obligations and defend your rights against the authorities.