The ECJ has recently decided that the “répondant” procedure implemented by the French government as from September 1, 2006 is contrary the EU VAT principles (ECJ decision dated December 15, 2011 – n° C-624:10 – EU Commission/French Republic).
- Brief reminder: what is the “répondant” procedure?
As from September 1st, 2006, a domestic reverse charge mechanism is applicable to all deliveries of goods (e.g. domestic supplies) and provisions of certain services taxable (real estate services) in France that are carried out by EU or non-EU VAT-liable taxpayers that are not established in France to taxpayers duly registered for French VAT (implementation of Article 194 of the VAT Directive 2006/112) (1) .
Therefore, the foreign economic operators that are not established in France (whether established in the EU or a third-party country), are no longer required to register for VAT in France if they exclusively carry out these taxable transactions in France. Consequently, they could recover the VAT on any expense incurred for the needs of their operations according to the 8th Directive or the 13th Directive. Due to the implementation of such domestic reverse mechanism, foreign businesses may avoid a VAT registration in France, but they bear the cost of a VAT credit position.
The tax authorities, in their June 23, 2006 Instruction, has commented on this new VAT regime (2) .and also introduced an administrative tolerance by which the foreign supplier remains authorized to declare and pay the output VAT in the name and on the behalf of its client.
Said tolerance is subordinated to the VAT registration of the foreign supplier and the appointment of a “VAT répondant” (respondent), i.e., a VAT taxpayer established in France that has been accredited by the French tax authorities.
This “VAT répondant” undertakes, in substance, to file VAT returns established in the name of the supplier and collect the French output VAT which remains the client’s liability. The foreign supplier is therefore entitled to offset its French input VAT against the output VAT collected for the account of its client on its French VAT return.
This mechanism has been maintained until now for the transactions on goods and services subject to the Article 194 reverse-charge mechanism.
- ECJ’s decision dated December 15, 2011
In 2009, the European Commission lodged an appeal before the ECJ against the French Government to judge that the “VAT répondant” procedure is contrary to the EU VAT principles.
ECJ declares that the ”VAT répondant” procedure contrary to the following EU VAT principles:
- The EU suppliers are no longer obliged to appoint a VAT representative from January 1st, 2002.
- The foreign suppliers that perform transactions subject to the Article 194 reverse-charge mechanism cannot be forced by the Governments to register for local VAT.
- The suppliers are only authorized to offset their input VAT against the output VAT for which they are the legal taxpayer.
- What are the impacts for the foreign suppliers in Farnce?
The "VAT répondant"s days are now numbered.
The French Government has not already officially commented this decision but we could reasonably consider that the current “VAT répondant” procedure version should no longer exist for the future.
The foreign companies which are acting in France under this administrative tolerance have to anticipate the VAT impacts of the amendment or abandon of this mechanism.
The cancellation of the “VAT répondant” should impact on the VAT registration liability and the VAT recovery procedure of the French input VAT of the foreign suppliers but also on the VAT position of the clients which should have to reverse-charge French VAT on the transactions.
Other indirect and practical impacts should be raised (VAT parameterization of the ERP, is the cancellation of the French VAT ID number of the supplier having an impact on other transactions in the EU?, ect.).
- Paragraph 2 of new Article 283-1 of the GTC
- Instruction 3 A-9-06, no. 105 of June 23, 2006