(French Administrative Supreme Court, Jan. 23, 2015, no. 365520)

The question at issue relates to the definition of the turnover for companies whose activity, from a VAT perspective, consists mainly in re-invoicing their subsidiaries for services supplied by external service providers.

Are these companies entitled to consider the amount recharged to their subsidiaries as a taxable turnover that has to be included in the calculation of their ratio of recovery?

In the case where the answer is positive, this automatically improves their ability to recover the VAT incurred on their overheads which is obviously a positive effect, notably when the company is an holding company (i.e., on non-VATable person, receiving dividends which are outside the scope of VAT and with no rights to recover VAT). It also reduces the burden of the Salary tax paid non VAT able businesses.

Considering the fact that the amount re-invoiced is subject to VAT and that no provision of the tax code excludes this kind of revenues from the VAT definition of the turnover, the French Administrative Supreme Court agrees to consider this turnover as a standard turnover, irrespective the fact that the company recharging the costs has no added value in the invoicing chain (assuming that the mere fact to act as intermediary between the service supplier and the customers, notably for managing payments and the allocation of expenses to the various companies has no economic interest, which is a debatable interpretation per se).

This ruling should end the dispute on this issue unless the tax authorities intends to use a secret weapon to limit the abuses.