The new French VAT Group
By Marine Doucey, Aliantis
Article 162 of the French Finance Act for 2021 implements in France Article 11 of the EU VAT Directive which introduced the option for a VAT Group. The VAT Group regime was entered into force in France as of 01 January 2023.
In their updated guidelines, the French tax authorities have fully taken into account the consequences of this legislative change. The French VAT group allows the creation of a single taxable person within a group of financially, economically and organisationally linked companies.
The main advantage of a VAT group is the simplification that results from the creation of a single taxable person with a single VAT identification number, filing a single return. As a result, intra-group transactions are disregarded for VAT purposes. Transactions carried out between a head office and its branch (and vice versa) constitute transactions falling within the scope of VAT when at least one of the two is a member of a local VAT group in its member state. The same applies to relations between branches.
As intra-VAT group supplies are not subject to VAT this can lead to cost savings on supplies between related businesses where input tax would not ordinarily be recoverable because of business-making exempt supplies (e.g. banking, insurance, training activities, private nurseries, etc). Ergo, exempt supplies from one company to another can be disregarded, meaning that the exposure to input VAT recovery restriction is removed.
Modalities and conditions of the French VAT group:
- The scheme is optional and flexible as the scope is freely chosen and can be adapted later under certain conditions.
- Only French-established businesses can be part of a VAT group.
- The members forming the VAT group must be closely bound to one another by financial, economic and organisational links.
- The VAT group will be subject to a prior application to the French tax authorities.
- The option for the VAT group must be formulated by the latest on 31 October of the year preceding its application.
- The option includes the list of members forming the VAT group, freely chosen by the representative member at the time of election, with the agreement of the members.
- The option takes effect on 01 January of the year following the year in which it was made. The minimum time period required for the duration of a VAT group is three years.
- The parameter of the VAT group is fixed for 3 years. Any new entry or exit of a member will be possible only at the end of the three-year period. Variations to the VAT group membership as a result of a sale or purchase within the corporate group are allowed.
- After the first three years, entities may move in and out of the French VAT group with the consent of the representative member.
- Once the application is approved, a group VAT number is granted to the VAT group.
- The representative member of the VAT group will be responsible for compliance obligations (such as filing the VAT return and the VAT payment). The representative member will also be in charge of claiming VAT credit refunds on behalf of the VAT group.
- All members of a VAT group in France are jointly and severally liable for VAT debts and VAT penalties. This includes the payment of tax and any adjustments up to the amount they would have been liable for in the absence of a VAT group.
- Members of a VAT group submit one single, consolidated VAT return. It is not possible to file separate returns for each member.
- The input VAT credit recorded by a member for a period prior to the entry into force of the option for the VAT group remains the responsibility of this member in its prior guise (i.e. it is not possible to carry over the input VAT credit of a member on the VAT return of the VAT group).
- Any valid input VAT credit recorded on the VAT return of the VAT group during the application of the optional regime will be definitively acquired by the VAT group.
Consequences of the VAT grouping regime on the French salary tax:
Sums not corresponding to turnover or revenue are not to be taken into account in the calculation of the salaries tax liability ratio: this is the case, in particular, for the provision of internal services within a single legal entity. This is not the case when, by way of derogation, these internal services fall within the scope of VAT: transactions between different States involving an entity that is a member of a VAT group.
As a consequence, the French Finance Act for 2023 specifies the cases in which VAT Group will lead to an increase of the French salary tax to be paid by employers who are members of a VAT Group.
Actually, the flows within the VAT group are considered as outside the scope of VAT for the purposes of the calculation of the French salary tax ratio.
Marine DouceyGGI member firm
Auditing & Accounting, Tax, Advisory
Lyon, Chasse sur Rhone, St. Etienne, Givos, France
T: +33 4 78 61 28 70
Aliantis is made up of chartered accountants and independent auditors, who constitute the main business of the firm, with a complete consulting division that includes experts in strategy development and business diagnostics, IT experts; labor law and payroll experts; tax law experts (corporate, personal income tax, strategies); human resources consultants (recruitment, management and training); and wealth management engineers.
Marine Doucey is attorney of law and Director of Aliantis tax department.
Published: Indirect Taxes Newsletter, No. 15 Spring 2023 l Photo: Kavalenkava - stock.adobe.com