France: Implementation of an optional VAT Group

The VAT group regime is going to be introduced in France, which is a true tax revolution.

France is one of the last countries to decide to implement the regime of Article 11 of the VAT Directive under which other Member States have already taken advantage of this measure. This regime allows, under an option, a group of entities to be considered as a single VAT taxable person.

Indeed, the new VAT Group allows members of the Group to supply, without VAT, any service or good to other members of the VAT Group.

The Finance Act for 2021 sets out the conditions and deadlines for the creation of such a group.

Article 162 provides that, as of 1 January 2023, the VAT group will be accessible to all taxable entities that have their registered office or a permanent establishment in France. Therefore, France decided to strictly circumscribe the territorial scope of application of the French VAT group.

Furthermore, in order to constitute a VAT group, taxable entities must be closely linked to each other in financial, economic and organisational terms at the time the option for the group scheme is exercised.

The option for the group plan must be performed no later than 31 October of the previous calendar year in order to be effective during a given calendar year. Once performed, the VAT Group will compulsorily cover a period of three calendar years. For an effective date of 1 January 2023, the option must be exercised no later than 31 October 2022.

As a consequence, as of 1 January 2023, the VAT exemption regime of Article 132 of the VAT Directive implemented in France under Article 261 B of the French Tax Code (FTC) will be limited merely to sectors of general interest. Therefore, previous rulings allowing to benefit from the VAT exemption regime of Article 261 B of the FTC to Financial, Insurance, Education and low-income housing sectors will no longer be applicable. Affected businesses need to immediately anticipate this possibility and will have to look for alternative solutions. 

Lastly, it should be noted that this regime will only apply to VAT, thus excluding other taxes such as corporate income tax and transfer pricing. It requires a thorough assessment not only of the gains generated by this regime but also of the constraints, the implementation and operation cost and the possible loss in terms of other taxes, if any.

Even if these provisions will be clarified by the French Tax Authorities, this VAT regime opens up new opportunities, particularly considering that it will make it possible to secure the VAT treatment of intra-group flows and to improve the cash flow of groups.

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