In roughly two out of five tax cases we bring before the courts, the French tax administration grants relief before the hearing. That figure says something about how French tax litigation works.
A French taxpayer who disputes an assessment must go to court. The tax administration needs no one: it assesses the tax, issues the demand, requires payment and may enforce it, without any judge having examined whether its position is well founded. This privilege is not an anomaly; it is the very architecture of the system. But it rests on an implicit promise: that the administration will only wield that power where it is right to do so, after actually examining the file.
An internal figure from our firm, on which this article relies, puts that promise to the test. Across all the contested cases we have brought before the tax courts, roughly two in five have ended with the administration granting relief, in whole or in part, after the claim was registered and before the hearing. In other words, in four cases out of ten, the department that takes over the file at the judicial stage concludes that it cannot defend it, and says so to the court before the court has ruled. Each of those assessments had nonetheless been put into recovery, with all the consequences that entails for the taxpayer.
This article first sets out the structural asymmetry of French tax litigation and its real cost for those who bear it (I). It then analyses the mechanism of relief granted mid-proceedings, what it reveals, and the position our firm has adopted in response (II). It ends with what already works within the administration, and the reforms that would generalise what, in some departments, is simply common sense (III). For international clients, this is also a guide to a procedural culture that differs markedly from the one they may know at home.
I. A Structural Asymmetry: The Taxpayer Goes to Court, the Administration Does Not Wait for It
A. Self-executing assessments and the mandatory prior claim
The administration issues its own enforceable title. When an audit ends in adjustments the taxpayer disputes, the administration does not have to persuade a third party before acting. It puts the assessments into recovery through a tax roll or a recovery notice, instruments that constitute an enforceable title and make the debt due. The taxpayer who wishes to contest must, by contrast, follow a mandatory path: a prior claim (réclamation préalable) lodged with the administration itself, which falls within contentious jurisdiction where it seeks the correction of an error in the basis or calculation of the tax or the benefit of a right arising from a statutory or regulatory provision (French Tax Procedure Code, LPF, art. L190). Only after that claim has been rejected, expressly or by silence, may the court be seized. The taxpayer therefore pleads first before his opponent, then before the judge; the administration never has to plead in order to collect.
The construction has its logic: continuity of public service and equality before tax require that a dispute not paralyse collection. But it shifts the entire procedural burden onto the taxpayer. He must draft, argue, file, wait, follow up, then start again before the court. And in the meantime the debt exists, is due, and carries its accessories. Readers familiar with common-law systems, where the burden of establishing a tax liability before an independent tribunal often sits with the authority, will find the reversal striking.
B. Suspension of payment: a conditional protection
The claim itself suspends nothing. To defer payment of the disputed portion, the taxpayer must have expressly requested it in the claim and specified the amount or the basis of the relief he considers due; the debt then ceases to be enforceable and the limitation period for recovery is suspended until a final decision by the administration or the court (LPF, art. L277). But where the claim concerns duties exceeding a threshold set by decree, the debtor must provide security covering the disputed duties, and failing security, or if the security offered is deemed insufficient, the collector may take protective measures (same article). The taxpayer has fifteen days from the collector's invitation to state the security he undertakes to provide, which may take the form of a cash deposit into a Treasury suspense account, a guarantee, securities, mortgages or pledges (LPF, art. R*277-1).
The protection exists, but it has a price. A bank guarantee must be negotiated and paid for; a mortgage must be registered and encumbers an asset; a cash deposit ties up liquidity for the whole duration of a procedure which, between the claim and the first-instance judgment, routinely runs for years. And the taxpayer who cannot provide acceptable security is exposed to the collector's protective measures, that is, to attachments in respect of disputed debts on which no judge has yet ruled. For non-residents, providing security a French collector will accept, from abroad, is a practical obstacle in its own right.
C. The real cost of the asymmetry
What is reimbursed, and what never is. One must be precise about what the law repairs. Where the State is ordered by a court to grant relief, or where the administration itself grants relief following a claim, sums already collected are refunded with default interest at the late-payment rate, running from the date of payment, and the costs incurred in providing security other than a cash deposit are reimbursed within limits and conditions set by decree (LPF, art. L208). On this point French law is more protective than is often said: a taxpayer who paid for a bank guarantee to obtain suspension recovers that cost when the assessment falls.
But reimbursement stops there. Never repaired are the assets tied up for years, the impossibility of selling a mortgaged property, the loan refused because of a pending tax debt, the transaction postponed or abandoned, the executive time consumed by the file, and, for a non-resident, the difficulty of providing from abroad security a French collector will accept. As for legal fees, they fall under the costs not included in the taxable costs which the court may order the losing party to pay, having regard to equity and to the economic situation of the party ordered to pay (French Code of Administrative Justice, CJA, art. L761-1): a sum left to the court's discretion, with no necessary relationship to the costs actually incurred. The asymmetry is therefore not only procedural: it is economic, and it persists even where the taxpayer prevails entirely.
II. Last-Minute Relief: Mechanism, Meaning, and the Firm's Position
A. The mechanism: relief mid-proceedings and discontinuance
The administration may back down at any time, including the day before the hearing. Nothing prevents the administration, once it has read the taxpayer's brief or the questions raised by the reporting judge, from granting relief of its own motion in the course of proceedings. It then asks the court to find that there is no longer anything to decide (non-lieu à statuer): the claim has become moot. The practice is perfectly lawful and, taken in isolation, even virtuous: an administration that recognises its error is better than one that digs in. The problem is not the relief; it is its timing.
For that relief comes at the end of a chain every link of which has been passed: proposed adjustment, taxpayer's observations, administration's reply, possible hierarchical appeal, recovery, prior claim, rejection decision, application to the court, statement of defence. At each stage the administration had the opportunity to examine the file and chose to maintain its position. When it finally gives way, it is not before a new fact: it is before the imminence of a judge. In our experience, the defence brief that seeks discontinuance rarely revisits the arguments of the audit department; it records, often in a few lines, that the assessment cannot be defended.
B. What the two-in-five proportion reveals
An internal figure, with its method. The figure we put forward is our firm's, not a national statistic, which does not exist in any published form. It is computed across all the proceedings we have brought before the tax courts, administrative and judicial alike; we count as relief before the hearing any relief, total or partial, granted by the administration after the claim was registered and before the hearing, whatever its stated reason. Our practice being oriented towards cases with an international dimension, the proportion is not necessarily representative of French tax litigation as a whole; it is, however, accurate for our files, and it is stable over time.
What does it mean? Two things, which must be kept apart. The first is favourable to the administration: the litigation departments that take over files at the judicial stage do their job, they read, they understand, and they give way when they must. The second is not: in four files out of ten, an assessment was put into recovery, with enforceability, security and sometimes protective measures in train, when a serious examination would have led to it not being raised, or to its abandonment much earlier. The filter worked, but it worked last, after the taxpayer had borne alone, for years, the cost of a position the administration itself ultimately judges indefensible. And that late retreat costs nothing to the department that held the line: whatever sanction the delay attracts falls on another department, and it is almost symbolic.
C. Our position: maintaining the claim to obtain an order against the State
Discontinuance does not close everything. When the administration grants relief mid-proceedings and seeks discontinuance, the taxpayer's temptation is to consider the matter over. Our firm has adopted a systematic position: we maintain our application for an order against the State in respect of costs not included in the taxable costs, and we ask the court to find that the administration, having conceded the claimant's case by granting relief, must be regarded as the losing party. The court orders the losing party to pay the other party the sum it determines in respect of such costs, having regard to equity (CJA, art. L761-1), and that order survives a finding of discontinuance.
One judgment shows this with almost didactic clarity. A taxpayer sought default interest from the State in an amount below one hundred euros; the administration paid it after the appeal had been lodged and sought discontinuance; the court found that the claim had become moot, then ordered the State to pay one thousand euros in costs (Lyon Administrative Court of Appeal, 15 December 2015, No. 14LY03811). The principle is settled: backing down mid-proceedings does not erase the status of losing party, and the State bears the costs. The sum awarded is often modest against the fees actually incurred, but the sum is not the point. The order itself is: it records in a judicial decision that the assessment should not have been defended, it creates a cost, however small, for late retreat, and it constitutes, file after file, the only public trace of a practice which would otherwise vanish into discontinuances.
This position is not posturing. We seek neither to prolong moot proceedings nor to obtain sums the file does not justify. We seek to ensure that the price of the error is not borne exclusively by the person who suffered it, and that an administration which sees the weakness of a file has a reason, however modest, to see it sooner.
III. What Works, and What Should Be Generalised
A. The departments that listen before recovery
The criticism would not be honest without this observation. In a significant share of our files, the administration reconsiders its position before any recovery. A hierarchical appeal, the intervention of the departmental interlocutor or of the auditor's superior, referral to the competent commission, or simply a reply to observations read with care leads to the total or partial abandonment of the adjustments without any assessment being raised. In those files the taxpayer has provided no security, tied up no asset, seized no court. The outcome is the same as in a mid-proceedings relief, the cost to him bears no comparison, and the administration gains too: a file settled at that stage occupies neither a litigation department nor a bench.
Those departments exist, they are not rare, and their practice demonstrates that the problem is not the culture of the administration in general, but the absence of any mechanism guaranteeing that this re-examination takes place everywhere and systematically before coercion is exercised. Where it takes place, the system works exactly as it should. Where it does not, it is the judge who plays, years later, the role the department should have played.
B. Three proposals
Make prior re-examination mandatory. The first reform costs nothing: make the recovery of any contested adjustment conditional on a formal re-examination of the file by an officer other than the auditor, whose reasoned conclusion would be notified to the taxpayer. That re-examination already exists, in practice, in the best-organised departments; it would be a matter of generalising it and making it traceable.
Require reasons for late relief. The second proposal addresses the moment of retreat. Relief granted after the court has been seized should state the reasons why the assessment, defended until then, no longer is, and specify at what stage those reasons were identifiable. Such reasoning, today non-existent, would distinguish the genuinely new fact from the late revision, and would give the court the elements it needs to assess costs.
Make the cost of late retreat proportionate. The third proposal concerns Article L761-1 of the Code of Administrative Justice itself. Where the State grants relief mid-proceedings on an assessment it had put into recovery, the sum awarded in costs should tend towards the costs actually substantiated rather than towards a flat amount, the equity the text invokes then operating in favour of the taxpayer who had to go to court to obtain what a re-examination should have granted him. The aim is not to punish the administration, but to ensure that late abandonment carries a price comparable to the one it imposed.
Conclusion
French tax litigation rests on a deliberate asymmetry: the administration enforces without a judge, the taxpayer contests only with one. That asymmetry is acceptable on one condition, that the power the administration holds be exercised only after a genuine examination of the file. Our experience shows that this condition is met in many departments, and that it is not met in a proportion of files too high to be accidental.
Our conviction is that relief granted mid-proceedings, where no new element explains it, is an admission that recovery should never have taken place, and that this admission must leave a trace. That is the meaning of the position we hold before the courts, file after file, in maintaining our applications for costs against the State despite discontinuance. It is not a war against the administration; it is the only way, under current law, to make a cost exist where there is none.
For the taxpayer, the recommendation is operational and begins at the proposed adjustment. Reply fully and with documents to the observations stage, because that is where attentive departments give way; systematically request the hierarchical appeal before any recovery; request suspension of payment in the claim, quantifying precisely the relief expected and preparing security in advance, fifteen days being a short deadline; and, if the file reaches the court and the administration backs down before the hearing, do not settle for the relief. An order for costs is available as of right where the administration concedes, and obtaining it is a contribution, modest but real, to ensuring the next taxpayer does not have to walk the same road.
Frequently asked questions
Does a tax claim suspend payment of the disputed tax in France?
Not automatically. The taxpayer must expressly request suspension of payment in the claim and specify the amount or basis of the relief he considers due. Enforceability is then suspended until a final decision (LPF, art. L277). Above a threshold of disputed duties set by decree, security must be provided within fifteen days of the collector's invitation, failing which the collector may take protective measures.
What security can be offered to obtain suspension of payment?
A cash deposit into a Treasury suspense account, claims against the Treasury, a guarantee, securities, warehoused goods under warrant, mortgages or pledges over a business (LPF, art. R*277-1). The collector has forty-five days to refuse the security offered; absent a reply, it is deemed accepted. If the assessment is ultimately relieved, the costs of providing security other than a cash deposit are reimbursed within limits set by decree (LPF, art. L208).
Can the French tax administration grant relief just before the court hearing?
Yes. The administration may grant relief of its own motion at any point in the proceedings and ask the court to find the claim moot. In Alphard Law's contested cases brought before the tax courts, roughly two in five see such relief, total or partial, between the registration of the claim and the hearing. Discontinuance does not, however, prevent an order requiring the State to pay the taxpayer's costs.
Can legal fees be recovered when the administration grants relief mid-proceedings?
Partially. The court orders the losing party to pay the other party the sum it determines in respect of costs not included in the taxable costs, having regard to equity (CJA, art. L761-1). An administration that grants relief mid-proceedings concedes the claimant's case and may be regarded as the losing party, including where the court finds the claim moot (Lyon Administrative Court of Appeal, 15 December 2015, No. 14LY03811). The sum awarded is at the court's discretion and does not necessarily cover all fees incurred; default interest and the costs of security are, by contrast, reimbursed under Article L208 of the LPF.