Bad debt relief
During very difficult times, businesses have cash problems, given that some of their custom-ers are no longer able to pay their invoices.
In case of supplies of services, this does not create VAT problems, given that VAT is due only when the invoice is paid, except if the supplier opted for payment at the time of invoicing, such as for the sale of goods.
Indeed, in the case of sale of goods, VAT is due at the time of invoicing, even if the customer does not pay the invoice. Therefore, the supplier is required to pay VAT to the tax authorities, even if it has not received the cash from its customer.
In the case of unpaid invoices for the sale of goods or for the supply of services, when the supplier opts for VAT payment at the time of invoicing, it is possible to receive a VAT credit. The supplier must send a copy of the invoice to the customer, specifying that the invoice has not been paid and that VAT cannot be deducted by the customer. It must also record the invoice as a loss in its accounting. The unpaid VAT is then recorded in the VAT return as input VAT and can be refunded by the tax authorities if the supplier is in a credit position. The recording as input VAT in the VAT return must be carried out before 31 December of the second year after the invoice has been considered as unpaid, e.g. 31 December 2021 for 2019 unpaid invoices. However, the tax authorities are very strict: they ask taxpayers to demonstrate that it is impossible for them to collect the payment of the invoice. In practice, it is very difficult to prove this, except in the event of customer bailout.
If the sale is cancelled or if the supplier grants a rebate, a credit note must be sent to the customer. The supplier can then deduct, as input VAT on its VAT return, the amount of VAT at stake and can ask for a refund, if it is in credit position.
Businesses have asked the tax authorities if, during the COVID-19 lockdown, it could be possible, in case of sale of goods, to pay VAT only when the customer has paid the invoice. However, for the time being, the tax authorities have not accepted this request.
Changing the structure of transactions
Of course, for optimising VAT cash flow, it could be possible to temporarily lease goods rather than sell them until the customer has sufficient funds to settle the purchase price. In that case, VAT does not have to be paid to the tax authorities until the customer pays the lease invoice.
If the customers are businesses and the French supplier sells goods purchased from an EU affiliate, it is also possible that the foreign affiliate sells the goods directly to the French customers. In this scenario, French VAT will be due by the customer through the reverse charge mechanism. The French company could invoice its margin to the EU affiliate as remuneration for its intermediary services; VAT on this margin will be due by the EU affiliate through the reverse charge mechanism. Of course, the customer will have to fill in the Intrastat return, whereas this could also be carried out by the French company acting on behalf of the EU affiliate.
Digital Services Tax (DST)
Normally, the first instalment for 2020 DST had to be paid in April. Due to the discussions between OECD Member States regarding future DST and particularly between France and the US, France has decided that the two 2020 DST instalments, normally due in April and in October, will be postponed to December 2020.
However, the balance of 2019 DST had to be paid in April 2020.
