Tax reassessment: judge rules against administration's inadequate explanations

18 March 2025

The tax adjustment procedure is based on a fundamental principle: the adversarial dialogue between the tax authorities and the taxpayer. This process is designed to guarantee the transparency of tax decisions and to safeguard taxpayers' rights of defence. However, when the tax authorities fail to give reasons for their responses to taxpayers' observations, the procedure may become irregular. Recent decisions by the Paris and Bordeaux Administrative Courts of Appeal illustrate this problem and underline the rigor required in the motivation of tax responses.

The fundamental principle of motivating tax responses

One of the major obligations of the tax authorities is to provide clear and detailed justification for its rectification decisions. This requirement is part of the respect for the adversarial principleThis is a fundamental principle of the French tax code, which guarantees taxpayers the right to understand and contest the elements justifying a tax adjustment. However, a number of recent rulings show that this requirement to state reasons is not always respected by the tax authorities:

In this case (CAA de Paris, 5th chamber, 13/02/2025, 23PA02734), a company challenged a tax adjustment based on the valuation of its shares. Instead of explaining the method used, the tax authorities simply recommended that the taxpayer contact a third-party company for further information. The Court ruled that this response was insufficient and annulled the tax reassessment, underlining the administration's failure to provide adequate reasons.
In another case (CAA de Bordeaux, 4th chamber, 20/02/2025, 22BX03119), a taxpayer challenged the valuation of shares in a SELARL operating a pharmacy. Although he presented his own valuation methods, the tax authorities failed to justify the method they had used. The Court ruled that this failure to respond constituted a breach of procedural obligations, rendering the procedure irregular and invalidating the rectification.

The judge's intransigence in the event of failure to state reasons

These decisions clearly illustrate the importance of rigorous reasoning in tax responses. Simply referring to an external source or failing to respond to the taxpayer's arguments is not enough. The adversarial principle requires the administration to provide detailed explanations.This is particularly true when it comes to valuing securities or shares. Failure to do so may result in the tax adjustment being reversed.

The administrative courts will not tolerate a vague or insufficiently justified response from the administration. The absence of a statement of reasons, or a simple reference to another source, constitutes a violation of the taxpayer's rights and compromises the validity of the rectification procedure.

In conclusionThese decisions by the Paris and Bordeaux Administrative Courts of Appeal are a reminder of the importance of clear, detailed reasons for tax responses. In the event of non-compliance, the rectification procedure may be cancelled.This jurisprudence requires greater vigilance on the part of tax authorities. This jurisprudence requires increased vigilance on the part of tax authorities, guaranteeing transparent tax rulings that respect the principles of due process.

Source :

https://www.legifrance.gouv.fr/ceta/id/CETATEXT000051170790