Tax audits: what the new settlement agreement allows – and what it doesn’t

In practice, many tax audits end in a settlement between the business and the tax authority. Until 2024, these settlements rested on custom rather than on any statutory text. The 2025 Finance Act (Loi de Finances) inserted a new Article 221 ter into the General Tax Code (CGI) to give them a clear legal framework. The Directorate General of Taxes (DGI) set out its scope in DGI circular (note circulaire) No. 736.

When can a settlement be reached?

A settlement is possible in every procedure provided for by the CGI: audit of the accounts, review of overall tax position, review of prices declared in deeds, amended returns, adjustment of property capital gains, ex officio assessment, and so on.

It becomes available once the procedure has started. In an audit, it can only be concluded after the first notification letter has been sent. Before that notification, there is no quantified basis to negotiate on.

What can the settlement cover?

This is the key point: a settlement covers questions of fact only, never questions of law.

Questions of fact are the tax authority’s assessments and valuations. The DGI lists in particular:

• reconstructed turnover, excluding amounts established by cross-checking;
• the amount of expenses allowed;
• estimated prices, margins and capital gains;
• the value of benefits in kind or gifts;
• the reclassification of an expense as a fixed asset;
• the valuation of profits transferred between related businesses;
• the bases for withholding taxes;
• the prices stated in deeds;
• depreciation and provisions.

Questions of law concern the very principle of taxation, exemption or deduction: whether an expense is deductible under the CGI’s conditions, eligibility for an incentive regime, or the applicable rate. The principal tax arising on these points cannot be negotiated. The tax authority may, however, take into account new evidence that is properly substantiated.

What about penalties?

Surcharges and penalties can be waived or reduced, depending on the circumstances, for questions of fact and questions of law alike.

The effects of a settlement

• It is final and irrevocable.
• It closes the procedure for good, on every point notified.
• It is drawn up in duplicate, on the tax authority’s standard form, and states the bases and taxes agreed, the names and positions of the signatories, and the date.
• It comes with a letter waiving all appeals: local, regional and national commissions, and administrative and judicial appeals.
• Where a final judgment exists, the settlement cannot set taxes lower than those fixed by the court, except on points of fact on which the judgment did not rule.

An example

During an audit, the tax authority notifies a distribution company of two adjustments:

1. a reconstruction of turnover based on margins, adding 2 million dirhams (MAD);
2. the add-back of expenses not supported by compliant invoices.

The first point is a question of fact. The margin used can be challenged, and the settlement can fix an intermediate amount in light of the evidence you produce. The second is a question of law: deductibility depends on the statutory conditions. It cannot be negotiated unless new supporting documents are produced. The penalties on both points, however, can be reduced.

Local tax commissions: a wider remit

The same Act extended the remit of the local tax commissions (commissions locales de taxation) to appeals on “other income and gains” from profit-making transactions, the new category of personal income tax (IR). The taxpayer’s tax domicile also becomes a criterion for deciding which commission has jurisdiction.

Our recommendations

• Don’t sign too early: analyse each adjustment and classify it as fact or law.
• Produce convincing evidence: the negotiation is won or lost on the facts.
• Weigh up the waiver: once you sign, no appeal is possible – even on a point of law you might have won before a commission or a court.
• Get advice from the first notification.

Our tax and legal team supports businesses and individuals at every stage of a tax audit. To discuss your situation, contact us.