In brief

The VAT department of the Ministry of Finance has continued working during the summer break and a set of new measures could be adopted in the coming months. They are still projects and they have not yet been approved by the relevant authorities.

Financial sector: The project is to introduce more flexibility to opt for VAT on exempt financial services (likely applicable in January 2022)

Financial services are exempt from VAT but a there is list of them that are taxable upon election. The current option is global, i.e., it includes all financial services except for a list of those that are always exempt. The aim of the project is to grant an option on a transaction-by-transaction basis rather than globally. If it is adopted, operators will have the opportunity to maximize their VAT recovery ratio as well as to reduce the burden of the salary tax.

Advance payments for supplies of goods will be taxable (likely in force in July 2022)

VAT is due when the goods are supplied, i.e., when the transfer of the title of ownership takes place, irrespective of the date of invoicing or the payment. Therefore, prepayment on sales of goods is currently not taxable. The proposal is to apply VAT on advance payments. This change would not generate VAT costs but could heavily impact IT systems for many businesses. For a smooth implementation of these changes, a period of six months would be granted to implement the reform.

Non EU-businesses: tax authorities would like to restrict the ability to act as a tax representative (likely applicable in January 2022 )

Non-EU companies liable for VAT in France must appoint a tax representative that must be accredited by the tax administration. This tax representative is responsible for the tax due by the foreign business. Under the proposed changes, as of January 2022, the conditions to be accredited would be more restrictive in order to exclude tax representatives that do not have the capacity to pay the tax debt. Existing tax representatives would have two years to comply with these new obligations, while they would be immediately applicable to newly appointed tax representatives.

Feedback on the "VAT grouping" reform

VAT grouping will be effective in 2023. However, despite the fact that all businesses could theoretically be eligible for the French VAT group, fully vatable businesses should not have an interest in grouping. Indeed not applying VAT on intra-group transactions should have an adverse impact from a salary tax perspective, which has now been confirmed by tax authorities. The reform has in fact been tailored for exempt businesses, for which there is likely a positive balance between VAT group impacts and the salary tax burden. Other process are available to improve the VAT cash flows for vatable activities.

Recommended actions

Some of these changes could improve the VAT position of your business (the option to tax or VAT grouping), while others would only impact your IT system (tax applied on advance payments), but you will need time to implement them if required. Periodic updates on the status of this draft legislation will be key in the coming weeks.