Failure to set up a provision at the end of a fiscal year: no adjustment possible

CJEU Ruling No. 461039 of 18/10/2022 – Failure to Set Up a Provision Prevents Tax Deduction

In its ruling No. 461039 of 18 October 2022, the French Council of State (Conseil d'État) reaffirmed that the failure to establish a provision at the end of a fiscal year prevents its deductibility for tax purposes.

The Court also clarified that this omission cannot be corrected either by filing a claim or, exceptionally, by offsetting it during a tax adjustment relating to the disputed fiscal year.

This decision, resulting from a strict interpretation of Article 39(1)(5) of the French General Tax Code (CGI), is consistent with previous rulings concerning the failure to record depreciation charges at year-end.

This ruling serves as a reminder for companies, during year-end closing operations, to ensure that all provisions arising during the fiscal year are properly recorded and, if applicable, deducted for tax purposes before final closing and submission to third parties (tax authorities and commercial court registry).

Ruling solution:

"It follows from the aforementioned provisions of Article 39(1)(5) of the General Tax Code that a provision cannot be deducted from the fiscal year’s result if it has not been properly recorded in the accounting entries at the close of the year. The failure to establish a provision cannot therefore be corrected through a claim or, after the claim period has expired, by offsetting during a tax reassessment."

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