Insufficient Explanation of Reconstructed Receipts Invalidates French VAT Assessments

• The French tax authorities assessed additional output VAT using a synthetic reconstruction of allegedly received but undeclared revenue.
• The reassessment notice did not identify the relevant receipts, reject the company’s accounting records or explain adequately how the reconstructed amount had been calculated.
• The Conseil d’État held that the notice was insufficiently reasoned and cancelled the VAT assessments and the related penalties.

Extended article

In its judgment of 2 October 2026 in Case No. 506628, the Conseil d’État reinforced an important procedural protection for taxpayers facing VAT assessments based on reconstructed receipts. A tax authority cannot merely present an overall amount of allegedly undeclared revenue. It must explain the factual and methodological basis of the calculation sufficiently clearly to allow the taxpayer to understand and challenge the assessment.  [conseil-etat.fr]

The case concerned additional VAT imposed on SARL Euro 2000 for the period from 1 January 2009 to 31 December 2010. The company’s director had also been held jointly liable for the VAT and associated penalties under Article 1745 of the French General Tax Code. [conseil-etat.fr]

The tax authorities considered that the company had not declared all the VAT due on the services it had invoiced. To calculate the alleged shortfall, the auditor determined a global amount of receipts considered to have been collected but not declared. However, the authorities had not formally rejected the company’s accounting records, did not identify or reconcile the actual customer payments in question and did not provide a sufficiently detailed explanation of how the reconstructed amount had been reached.  [conseil-etat.fr]

Article L. 57 of the French Tax Procedure Code requires the tax authorities to state the reasons for a proposed adjustment in a manner that enables the taxpayer to formulate observations or express acceptance. In this case, the lack of detail meant that the taxpayer could not meaningfully verify the alleged undeclared receipts, challenge the underlying calculation or engage in an informed discussion with the tax authorities.  [conseil-etat.fr]

The Conseil d’État found that the lower court had mischaracterised the evidence when it concluded that the reassessment notice was sufficiently reasoned. The Court consequently cancelled the relevant judgment and, deciding the matter itself, discharged the additional VAT and the corresponding penalties.  [conseil-etat.fr]

The decision is particularly significant because the dispute was not limited to a disagreement over the accuracy of the tax authority’s calculation. The defect affected the validity of the assessment procedure itself. Even where the authorities suspect that turnover or output VAT has been understated, the taxpayer must be given enough information to understand:

• which receipts are considered undeclared;
• the period to which they relate;
• how the receipts were identified;
• whether the figures were derived from invoices, bank statements or other evidence;
• how the VAT amount was calculated; and
• why the accounting records were considered unreliable or incomplete.

The case also demonstrates the importance of distinguishing between invoicing and collection when determining output VAT on services. Where VAT becomes chargeable on receipt of payment, the tax authorities should normally establish which payments were collected and when. A global revenue estimate, without a proper payment-by-payment or otherwise verifiable reconciliation, may not be sufficient.

For businesses, the judgment provides a strong procedural argument against VAT reassessments based on opaque calculations. It does not mean that every reconstruction is invalid, nor does it prevent the authorities from using indirect evidence where accounting records are incomplete. It does mean that the methodology, assumptions and data must be communicated clearly enough for the taxpayer to test them.

Practical implications

• Reconcile taxable turnover, invoices, credit notes, bank receipts and declared VAT for every assessment period.
• Request the detailed calculation and supporting data where the authorities use a reconstructed revenue figure.
• Check whether the reassessment notice explains the applicable VAT chargeability rule, especially for services taxable upon collection.
• Identify any mismatch between reconstructed receipts and actual bank or customer-account entries.
• Raise insufficient reasoning under Article L. 57 at the earliest stage of the procedure.
• Preserve accounting and payment evidence, even where the formal retention period is approaching expiry, if a dispute is foreseeable.

The judgment is also relevant to directors and other persons potentially exposed to joint liability. The underlying VAT debt must first be established through a legally valid procedure. A materially deficient reassessment notice may therefore affect not only the company’s liability but also related recovery actions against its directors. [pwc | PDF], [conseil-etat.fr]

External links

• Decision No. 506628 of 2 October 2026
• French Supreme Administrative Court case-law database
• PwC