France: Amendment to the option for VAT for banking and financial services

The draft of French Budget Bill for 2022 proposes to facilitate the election for VAT taxation of banking and financial in order to make French Funds Managers more competitive as from 1 January 2022. Nevertheless, the current wording of the draft bill leaves it unclear as to what extent French fund management companies will be able to benefit from the amendment.

Reminder of the provision currently applicable

According to the present version of Article 260 B of the French Tax Code (“FTC”), taxable persons are allowed to opt for VAT for a number of banking and financial services, exempted under Article 261 C 1 of the FTC. If exercised, the option mandatorily covers all eligible activities, including fund management, i.e. all financial activities which are not expressly excluded (Article 260 C of the FTC). In other words, the provision is an all-in option under which it is not permitted to apply VAT to only one or some of the eligible services.

The formal condition to benefit from the option is a formal letter to be sent to the competent tax office. The option is effective as from the 1st day of the following month and covers a five-year-period.

What changes if the draft Budget Bill is passed?

As from 1st January 2022, Article 260 B of the FTC should be amended in order to provide that taxable persons who opt will be able to apply VAT “only to the chosen transaction”. Accordingly, the option will no longer be global (i.e. covering all eligible financial activities) but it will be possible to opt for a limited scope of operations.

Taxable persons may eventually decide whether to opt or not, by taking into account, for each operation concerned, subsequent potential outcomes and consequently improve/ reduce their VAT impacts. No changes to the formal requirements are envisaged.

Outstanding questions

In principle, an option per “investment fund” will be allowed under the revised provision. If so, this would notably enable to make a choice depending on the recovery rights of the recipient and to opt solely when management fees are invoiced to a fund with VAT deduction rights.

However, the revised provision is not clear. As per the draft itself, the main purpose of this amendment is introducing more flexible conditions to opt for VAT in order to strengthen the attractiveness of France with regards to financial services activities. In these terms, an option per fund would be highly welcomed, insofar as it is comparable to what already exists in other EU countries.

In the coming days, we should have the final version of the Bill of Finances for 2022 and the official comments from the French Tax Doctrine. A VAT option depending on the ability of the fund to deduct VAT could be implemented in France.

If you wish to discuss these topics, please contact: Fidal, Paris

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