France: Changes in sight

France has recently announced that it will join other Member States that have gone ahead of EU regulations and imposed electronic invoicing. In France, the obligation to receive electronic invoices for B2B flows will come into force on 1 July 2024. The obligation to issue invoices will be imposed in successive steps.

However, this ‘escape route’ is exceptional. Thus, French rules on indirect taxes are still very much constrained by EU regulations. Two examples of this can be found in the current tax situation.

The first concerns the reporting obligations of companies carrying out intra-Community transactions involving the movement of goods to or from France. Until now, the companies concerned complied with their reporting obligations by filing a single monthly declaration called an exchange of goods declaration (Déclaration d’Echange de Biens – DEB).

The implementation of the 2019 European Business Statistics regulation will now replace this with two separate monthly declarations, one for statistical purposes and the other for tax purposes (EC sales list).

With some limited exceptions, the items to be reported in these two returns remain unchanged compared to previous returns. However, all the practical modalities for filing the new declarations, which will affect the returns to be filed in February 2022 with respect to January transactions, have not yet been published.

Since the VAT exemption for intra-Community supplies of goods is subject to the condition that companies comply with their declarative obligations, a period of tolerance is desired by companies and their attorneys, but unfortunately this has not yet been confirmed.

The second concerns the VAT treatment of advance payments received with respect of a sale of goods from January 2023.

For the moment, in the case of supplies of goods, VAT is only payable on the date of transfer of ownership of the goods, i.e. on the date the final invoice is issued. VAT is therefore not payable by taxable persons receiving an advance payment with respect to the sale of goods.

A decision of the Administrative Court of Appeal of Nantes in May 2021 decided that the French regulation is not in line with EU VAT law. Therefore, the French legislator provides that, as from 1 January 2023, VAT will be payable upon receipt of an advance payment with respect to the supply of goods.

In practice, this new rule will affect many French companies from 1 January 2023. Therefore, businesses that receive advance payments in the context of sales of goods will have to collect VAT upon receipt of the advance payment, up to the amount received. Businesses that purchase goods and receive advance payment invoices for this purpose, will be able to deduct the VAT immediately, without waiting for the final invoice.

The significant impact on all French businesses explains why the legislator has given them a one-year period to adjust their operating methods and IT tools.

Businesses should therefore take advantage of 2022 to ensure that their procedures and IT tools allow them to collect VAT on the date of receipt of the advance payment to avoid the application of the 40% penalty for the deliberate failure to collect VAT on time.

Read the WTS Global VAT Newsletter here.