Provisions for risks and charges in France: PCG accounting and tax deductibility 2026

Up to date as of 15 May 2026.

Provisions for risks and charges are a critical balance-sheet item for French SMEs and mid-sized companies. They allow businesses to recognize probable future losses before those losses become certain. However, French accounting rules (PCG) and tax rules (CGI) apply different, and sometimes divergent, conditions. A poorly documented provision can be disallowed in full during a tax audit, triggering reassessment, late-payment interest, and penalties. This is the operational analysis from Hayot Expertise, expert-comptable in Paris.

Under PCG art. 322-1 and 322-3, a provision is a liability of uncertain timing or amount. It differs from a certain liability (known amount and due date) and from a contingent liability (risk too uncertain to recognize on the balance sheet, disclosed in the notes only).

A provision meets three PCG criteria:

• The company has a present obligation (legal or constructive) toward a third party.
• It is probable that a transfer of resources will be required to settle the obligation.
• The amount can be reliably estimated.

If these conditions are not all met, the item is a contingent liability, disclosed in the notes to the accounts only.

This distinction is fundamental. The French tax authority (DGFiP) checks that a provision does not disguise a certain expense recorded late, nor a simple reserve intended to reduce taxable income.

CGI art. 39-1-5 sets out five cumulative conditions for a provision to be deductible from taxable income.

Our view. Condition 3 (probability) is the most contested in tax audits. A vague concern or hypothetical risk is not sufficient. The DGFiP distinguishes the probable (above 50%) from the possible (below 50%). A dispute where the company's lawyer estimates a 40% chance of losing does not justify a fully deductible provision.

Provisions for risks (accounts 1511-1518)#

• 151.1 - Provisions for litigation: any labour dispute, commercial or tax litigation in progress.
• 151.2 - Provisions for customer warranties: probable damages and repairs under warranty contracts.
• 151.5 - Provisions for foreign exchange losses: uncovered positions at year-end.
• 151.8 - Other provisions for risks.

Provisions for charges (accounts 1521-1528)#

• 152.1 - Provisions for taxes: deferred or uncertain tax charges.
• 152.4 - Provisions for restructuring: subject to very strict conditions.
• 152.5 - Provisions for retirement and end-of-career benefits (IFC).
• 152.8 - Other provisions for charges.

Impairments (accounts 39, 49, 59)#

Asset impairments (doubtful receivables, inventory, investment securities) follow a similar logic to provisions but are recorded against asset accounts. They are generally deductible if the CGI art. 39 criteria are met.

Recording a provision (dotation) at year-end:

• Operating risk: Debit 6811 (dotations aux provisions d'exploitation) / Credit 1511 to 1518
• Financial risk: Debit 6861 / Credit 1515 (foreign exchange losses)
• Exceptional risk: Debit 6872 / Credit 151x or 152x

Reversing a provision (reprise) when the risk disappears:

• Operating: Debit 1511 to 1518 / Credit 7811 (reprises sur provisions d'exploitation)
• Financial: Debit 1515 / Credit 7861
• Exceptional: Debit 151x or 152x / Credit 7872

The underestimated risk. Forgetting to reverse a provision is one of the most common anomalies found during annual review. When a dispute is resolved favourably, the provision must be reversed in the year the risk ceases. A forgotten provision inflates charges artificially and may be reclassified as an irregular provision during an audit, with retroactive reinstatement into taxable income.

End-of-career benefits (IFC)#

Under French GAAP (PCG), the IFC provision is optional (PCG art. 335-1). Under IFRS (IAS 19), it is mandatory. When recognized, an actuarial calculation is essential: staff turnover rate, mortality tables, discount rate. Tax deductibility applies if all five CGI art. 39-1-5 conditions are met and the calculation is rigorously documented.

Customer warranty provision#

The statistical approach provides the strongest deductibility basis: average claim rate over 3 to 5 prior years, applied to the outstanding revenue still under warranty. The calculation schedule must be archived with the year-end file.

Pending employment dispute (conseil de prud'hommes)#

The provision is justified if the lawyer or legal adviser estimates the probability of losing above 50%. A written opinion or formal internal note must be retained. The provisioned amount covers probable damages but not procedural costs that remain uncertain.

Restructuring provision#

Conditions are particularly strict: a detailed restructuring plan must have been announced before year-end, and the decision must be irreversible (binding commitments to affected parties). A strategic reflection alone is not sufficient.

Some provisions that are valid under French GAAP (PCG) are systematically disallowed by the tax authority:

• Self-insurance or own-risk provisions without a specific identified claim: no third-party obligation exists.
• General or lump-sum provisions not linked to a precisely identified individual risk: non-deductible (CGI art. 39; consistent CE case law).
• Provisions for redundancy pay not yet decided: the mere intention to carry out future redundancies does not create a sufficiently precise obligation.
• Provisions for goodwill impairment: these should be treated as asset impairments, not provisions for charges.

The provision must correspond to the best estimate at the closing date of the amount needed to settle the obligation. When the risk extends over more than one year, discounting is recommended (and mandatory under IFRS): the present value of the probable outflow is calculated using a risk-free rate.

In practice, French GAAP SMEs rarely apply discounting, but the rationale should be mentioned in the notes if the impact is material.

A robust provision file includes:

1. Evidence of the origin of the risk: contract, court summons, correspondence.
2. Detailed calculation: method used, assumptions, basis.
3. Lawyer or expert opinion (especially for litigation and IFC).
4. Year-on-year comparison: changes in provisions from one year to the next.
5. Provision tracking schedule by category and by counterparty.

In the event of a tax audit (LPF art. L57), this file is the first document requested. A provision without documented justification is reinstated into taxable income as a matter of course.

The DGFiP can challenge a provision within the standard reassessment window (3 years for corporate income tax, extended to 10 years in fraud cases). Reinstatement triggers:

• Late-payment interest: 0.20% per month (2.4% per year).
• 40% surcharge for deliberate non-compliance.
• 80% surcharge for fraudulent schemes.
• Penalty for underreporting when the amount is significant.

Risk increases when provisions are large, recurring, and insufficiently documented.

A Paris SME is sued by a former employee. The company's lawyer estimates a 65% probability of losing, with a likely award of EUR 30,000.

• Provision recorded: EUR 30,000 (best-estimate approach, conservative method used in practice).
• Journal entry: Debit 6872 / Credit 1511 for EUR 30,000.
• Deductibility: yes, provided the lawyer's written assessment is included in the year-end file.
• Watch out: if the dispute is settled in the following year for EUR 18,000, the reversal is EUR 30,000 (credit 7872) and the actual expense of EUR 18,000 is recorded separately.

A company generates EUR 2,000,000 of annual revenue covered by a two-year warranty. The average claim rate over the past four years is 1.2%.

• Outstanding warranty exposure: EUR 2,000,000 x 2 = EUR 4,000,000 (simplified estimate).
• Provision: EUR 4,000,000 x 1.2% = EUR 48,000.
• Documentation: historical claim table 2022-2025 archived in the year-end file.
• Deductibility: yes, provided the statistical schedule is formally prepared and retained.

An SME with 5 employees decides to recognize its end-of-career benefit obligations. The actuarial calculation (carried out with INSEE demographic data) yields a total commitment of EUR 22,000.

• Journal entry: Debit 6812 / Credit 1525 for EUR 22,000.
• Under French GAAP: optional but deductible if the calculation is documented.
• Deductibility conditions: legal obligation exists, actuarial calculation retained and updated annually.
• Note: if the company later adopts IFRS (capital opening, external investors), the IFC provision becomes mandatory.

In the annual files we review, the most frequent issues around provisions are:

• Provisions forgotten from one year to the next, with no analysis of whether the underlying risk has changed.
• Missing documentation: a provision without a supporting file is indefensible in an audit.
• Lump-sum amounts not linked to an identified risk: this is the definition of a general provision, non-deductible by construction.
• Confusion between provision and certain liability: a lawyer's invoice received before year-end is a charge to accrue (charge a payer), not a provision.
• Failure to reverse when the risk disappears: if litigation closes, the provision must be reversed in the year of resolution.

Securing provisions is a major issue when preparing the annual tax return (liasse fiscale) and during any tax compliance review. It requires careful monitoring throughout the year, not only at year-end.

Provisions for risks and charges are one of the most scrutinized balance-sheet items by the French tax authority, particularly for SMEs that seek to anticipate future charges. The Conseil d'Etat's case law is consistent: only a provision that satisfies all five cumulative conditions of CGI art. 39-1-5 is tax-deductible. Documentation is the business owner's primary line of defence in a tax audit.

At Hayot Expertise, we systematically review the provisions schedule at every year-end closing: origin of risk, calculation method, year-on-year movement, justification. This approach prevents hidden tax reinstatements and secures the annual tax filing.

If you would like to review your provisions or prepare your file ahead of a tax audit, contact the firm for an initial consultation.

Sources:

• PCG art. 322-1, 322-3 (Legifrance)
• PCG art. 335-1, departure benefits (Legifrance)
• CGI art. 39-1-5, deductibility of provisions (Legifrance)
• LPF art. L57, contradictory reassessment procedure (Legifrance)
• BOFiP BOI-BIC-PROV, provisions in BIC/IS (impots.gouv.fr)
• Conseil d'Etat case law, conditions for tax deductibility of provisions

This article is for informational purposes only. The tax deductibility of provisions depends on the specific situation of each company, the exact nature of the risk, and the state of the law applicable at the relevant year-end. Individual review of the file by an expert-comptable is required before any decision.