Tax Alert - The VAT group option arrives in France

A VAT group on 1 January 2023

Article 45 of 2021 Budget bill plans to implement the VAT group on 1/01/2022 for use by operators in all sectors of activity on 1/01/2023.

The VAT Group is a scheme that assimilates to a "single taxable person" persons who are legally independent but linked financially, economically or organisationally. These conditions would be cumulative.

Advantages of the scheme

The purpose of the VAT group is to neutralize intra-group transactions for VAT purposes. Thus, intra-group flows would not be subject to VAT but would have to be traced by the group anyway, so the scheme does not have an impact on other taxes (in particular, payroll tax).

This new regime would have a significant impact on the cash management of groups by going further than the system currently in force for consolidating payments reserved for companies that depend of the tax center “DGE”.

A VAT group as an extension of the Cost Sharing Group?

The introduction of the VAT group in French law would replace the VAT exemption regime of cost sharing group implemented by article 261 b of the French Tax Code.

An optional VAT group for a 3-year period

An option could be made as early as 31 October 2022 for concrete use as early as 1 January 2023 for a period of three years.

With regard to deduction rights, members would be considered as sectors of activity.

The principle of allocation would thus take on its full meaning with regard to the group's expenses.

The members would lose their status as VAT taxable persons and would no longer have reporting obligations as such. Only the representative of the VAT group would be the guarantor of all reporting obligations, but the members would nevertheless be jointly and severally liable for the payment of VAT.

Need to assess the effects of the VAT group upstream and thus optimise its scope of consolidation

This reform has a great importance for groups.

Compagnies that would be eligible for this scheme must already get organised to determine the impact of this measure on their group and thus draw up the scope of their potential future VAT group.

Depending on the location of the entities, it will be necessary to determine whether it is in the interest of the group as a whole to integrate them, particularly in the light of the Skandia case.

According to the members' rights of deduction, it may be worthwhile including them in the scope of the VAT group.

Therefore, it will be necessary to analyse the group's operating processes in order to set up a VAT group which provide legal certainty for operators.