How do I write a reliable audit trail for my company (French invoicing obligation) ?

What is the Reliable Audit Trail?

Since 2013, the method of issuing invoices has been liberalized. Businesses can issue invoices in any type of format (paper or electronic).

To manage this liberalization of the methods of issuing invoices, control procedures must be put in place so that a reliable audit trail is ensured throughout the billing flow.

In particular, the French tax authorities specifies that the Reliable Audit Trail must allow:

- To reconstitute, in chronological order, the entire billing process, from its origin (for example, the purchase order) to the invoice document, that is to say, to reconstitute the documented process (purchase orders, delivery notes, etc.) of an operation and to link the various documents of this process - To guarantee that the invoice issued or received reflects the operation that took place, by making it possible to establish a link between the invoice and the invoice the delivery of goods or the provision of services on which it is based;

- To justify any operation with an original part from which it must be possible to trace the invoice uninterrupted and vice versa.

In order to fulfill its tax obligations and draft a compliant Reliable Audit Trail, it is necessary to determine what the expectations of the Tax Authorities are.

What are the expectations of the tax authorities?

The French tax authorities has provided few details concerning the form that the Reliable Audit Trail should take.

However, it specified that it is up to each taxable person to determine, according to his own organization, the extent and the means of control that he must put in place to ensure the authenticity of the origin, the integrity of the content and the readability of the invoices issued or received.

In practice, the reliable audit trail should meet the following requirements:

- The reliable audit trail should be the subject of a documented procedure.

The authorities specify that these controls must be documented, that is to say, be described, presented and explained by the company. The objective of the documentation is to show that the controls put in place by the company are effective and real, and to allow the administration to easily understand them during an inspection.

The document (s) must explain the control actors as well as their respective tasks (who checks the documents and data, when and under what methods?).

It is recommended to prepare a written document that can easily be sent to the Tax Authority in the event of an inspection. However, the tax authority accepts that an oral description of procedures may be sufficient for TPEs.

- The reliable audit trail should be adapted to the size of the company.

The Tax authority specifies that the larger the size of the company, the more complex, automated and computerized its procedures are, the more effective the internal control is, the higher the expectations of the tax administration will be.

You should take stock of the obligations imposed on your company in order to satisfy the requests of the tax authority in the event of an inspection. Inadequate documentation could be penalized if the administration considers that it is not adapted to the size of the company.

- The Company must be able to prove the reliability of its documentation

It is necessary to prove the existence of controls that are put in place at company level. This includes an exhaustive presentation of the role of each person responsible for checks.

In this respect, it is recommended to keep evidence of these checks or tests in order to present them to the authority in the event of an inspection. Indeed, the authority wishes to ensure that the controls implemented in the company make it possible to establish a link between an invoice, accounting and tax proof, and the reality of the invoiced operation, and in particular to reconstitute, in chronological order, the entire billing process, from its origin (e.g. the purchase order) to the invoice document.

What are the sanctions in the event of the absence or lack of a reliable audit trail?

If your company is unable to present a reliable Audit Trail in the event of an audit, the sanctions can be particularly severe.

With regard to purchase flows, the Tax authority could question the deductibility of input VAT.

With regard to sales flows, the authority may impose a penalty of 50% of the invoiced amount (with a ceiling of 375,000 euros per year) or 5% of the operation when it has been correctly counted (with a ceiling of 37,500 euros per year).

It is therefore recommended to have such documentation in advance of any request from the tax authority to limit any risk of recovery in the event of an inspection.

Do you need support to write your Reliable Audit Trail?

It is not necessary to be accompanied to prepare reliable audit trail documentation. Each company is free to collect the written procedures in its possession in order to present them in the event of a tax audit. This is a minimum.

In practice, it is useful to write ad hoc documentation that presents each stage of the billing flow from the creation of the need to the archiving of documents.

It is recommended to be accompanied by a professional to draft documentation. In particular, this will allow you to save valuable time in collecting and selecting relevant documents, but above all, to draft your Reliable Audit Trail in accordance with the expectations of the tax authority.

Cyplom Avocats Attorneys had the opportunity to draft reliable audit trails for French and international companies, of all sizes and sometimes in emergency situations, in particular during tax audits. They will be able to identify your needs to best meet the requirements of the tax authority.