INSIGHT: French VAT Registration Obligation—Strength in Numbers?

In the European value-added tax (VAT) system, a large part of the rules applicable to international as well as domestic transactions relies heavily on the degree of presence of a business in a given country. When it comes to collecting the tax, and despite ever-growing administrative assistance, EU member states would prefer to have a taxpayer they are able to reach and assess.

The VAT identification number system provided for by the 2006/112/EC Directive, (the so-called VAT Directive) is a way of materializing that presence of a business in a member state. This presence will determine the extent of a company’s rights and obligations from a VAT point of view: the possession of an identification number giving rise to more extended rights and stricter obligations.

That is why it is so crucial for governments to issue VAT numbers carefully, and France is no exception. The allocation of a VAT number to foreign companies operating in France is not automatic. Recently, the French tax authorities (FTA) have not hesitated to reject registration applications where it was considered that companies applying for a VAT number in France did not meet the conditions to obtain such a number.

Businesses therefore have to make sure that their situation entitles them to be VAT registered in France.

Foreign Company Registration for VAT in France

In principle, Article 286 ter of the French Tax Code (FTC) provides categories of companies which have to be registered for French VAT purposes. These situations may be tricky to handle, a fortiori for non-France-based operators.

We may simplify these categories by stating that a foreign company must obtain a French VAT number in the following cases:

• the foreign company has a fixed establishment in France from which supplies of services are made or which receives services from suppliers established abroad (note that the definition of a fixed establishment for VAT purposes is different from the one used for corporate income tax purposes —see the definition provided by the OECD Guidelines). From a VAT point of view, a fixed establishment is defined as a presence on the territory of a member state, with a sufficient degree of permanence and an appropriate structure, in terms of human and material resources, which allows this establishment either to provide goods or services independently or to receive and benefit from such goods and services (ECJ, July 17, 1997, Case C-190/95, ARO Lease) and BOI-TVA-CHAMP-20-50-10, section 140;
• the foreign company is not established in France but carries out transactions for which French VAT is due, for example, domestic supplies of goods to non-taxable entities;
• the foreign company is not established in France but carries out transactions involving French VAT reporting obligations, even if the transactions carried out are VAT exempt—for example, exports of goods from France to a country outside the EU territory.

In addition, a foreign company may also be subject to a limited obligation to register for VAT (for example, for statistical purposes).

The Significance of Registering

To grasp the exact scope of these categories is of paramount importance. The possession of a French VAT identification number is a pre-condition for the application of a number of regimes, including useful simplification regimes.

The FTA do not allow foreign businesses to apply for voluntary registration. Foreign businesses may not apply for a VAT registration number unless their case falls within the scope of the categories listed above.

The problem is that the FTA have tended to fail to maintain clear guidelines on the way they apply Article 286 ter of the FTC: they have shown some inconsistency, notably as regards intra-EU transfers of own goods performed from France by non-established entities for the purpose of their activity.

In recent cases, although taxpayers performed taxable supplies giving rise to deduction of French VAT, we have observed that such taxpayers faced rejection of their registration application for the mere fact that they performed transfers of own goods and the FTA considered those transactions should not be reported by a non-established entity. As stated above, we believe that this approach is not in line with Article 286 ter; but while this position still needs to be confirmed by the Ministry of Finance and the judiciary, it illustrates the reluctance of the FTA to allocate VAT numbers where conditions are not strictly met.

As an example of the importance of the VAT identification number, it largely determines the conditions of deduction of French input VAT. The possession of a French VAT number implies the submission of French VAT returns which allow businesses to offset output VAT they have to remit to the FTA against the input VAT they have already borne on their expenses. It is the easiest and fastest way to ensure the effective application of the principle of neutrality provided for by the VAT Directive.

Article 208 of Annex II to the FTC specifies that a company may deduct input VAT on its French VAT return until December 31 of the second year following the year within which the VAT was due. On the other hand, a non-registered business can claim the refund of French input VAT through either the electronic VAT refund procedure of its state of establishment or through the “13th directive” procedure, where the business is not established in the EU. In the latter two instances, the French input VAT may only be deducted until, respectively, September 30 of the following year and June 30 of the following year. These are much shorter statutes of limitation than the one provided for registered entities.

In this context, the invalidation of an existing French VAT number by the FTA could lead to a rejection of the deduction of French input VAT, as it should not have been reported on the French VAT returns but should have been claimed through the refund procedures applicable to nonresident taxpayers. In the worst-case scenario, if the French input VAT has not immediately been deducted and dates back two calendar years prior to the request, the French input VAT could be definitively lost.

Further, in France the existence of a VAT number plays an important role in determining which entity is required to collect and remit the tax to the authorities. This is notably the case where goods and certain services are provided by suppliers which are not established in France. The French government has decided to implement a special reverse-charge mechanism for domestic supplies subject to French VAT where the supplies are provided by non-established entities, whether registered or not. Despite this obligation, wrongfully charging French VAT could lead to a rejection of the refund of such VAT.

Finally, on a broader scale, the VAT number sometimes holds more importance than it should. The FTA, as well as tax authorities of other EU member states, uses the VAT number as a necessary condition for the application of a number of VAT regimes. For instance, in the Plöckl decision rendered by the Court of Justice of the European Union (CJEU), the judges heard a case in which the German tax authorities had challenged the VAT exemption of an intra-EU delivery of a car, for the simple fact that the taxpayer in question did not present invoices that included the VAT number of the buyer.

The German tax authorities considered that the VAT number was a necessary condition to benefit from the VAT exemption applicable to intra-EU deliveries of goods. The CJEU condemned this practice by stating that, unless a tax fraud could be identified, the absence of VAT number could not put the VAT exemption of intra-EU deliveries in question provided that all substantial conditions were met. This case illustrates the tendency of the tax authorities to take the VAT number as the ultimate proof in several instances.

How to Register in France

EU Residents

Should a foreign company be required to register for VAT in France, there are two distinct procedures depending on whether or not the company is established in an EU member state.

If a foreign company based in another member state is required to register in France, it must submit to the Directorate of Non-Resident Taxpayers a CERFA form N. 15415*01, which is the official registration application available to a taxable person established in a member state of the EU other than France which does not have a permanent establishment in France, and which carries out taxable transactions in France or must fulfill reporting obligations there.

Applicants are asked to provide basic information related to the nature and conditions of the activity to be carried out in France. This form must be sent to the Directorate together with several documents (for example, a copy of the company’s articles of association translated into French).

At this stage, it is important to note that it is not possible for companies based in the EU to appoint a tax representative in France, which is mandatory for some companies based outside the EU. However, companies based in the EU can be assisted by appointing an agent who can help them fulfill their French compliance obligations by filing a French registration application and VAT returns (as well as Intrastat returns if they are required).

The main difference between a “tax representative” and an “agent” is that, from the FTA point of view, the tax representative and the foreign entity are both held equally liable to pay the French VAT due on the transactions performed by the foreign entity, whereas the agent cannot be assessed by the FTA and only the company remains fully responsible at the end of the day (BOI-TVA-DECLA-20-30-40-20, section 10).

Non-EU Residents

If a foreign company based in a non-EU member state carries out transactions in respect of which it is required to register for VAT in France, it must follow a more cumbersome procedure: it must have an accredited tax representative who is responsible for registering the company with the correct tax office.

That being said, the French government has a list of non-EU member states for which economic operators do not have to appoint a fiscal representative and which are allowed to apply directly for VAT registration (for example, Japan and Norway). These countries have entered into international cooperation and assistance agreements with France, which allow the French authorities to assess entities based in those countries almost as easily as EU-based entities. (It will be interesting to see whether a post-Brexit U.K. will make that list.)

Planning Points

• Companies should review their French VAT position and ensure that their French VAT number is (still) necessary (especially in case of contemplated VAT credit refund claims).
• Companies which intend to carry out an activity in France should study their situation carefully to determine whether they have to register in the course of the contemplated activity.
• We strongly recommend focusing primarily on whether there is an obligation to register for VAT in France. If so, companies need to make sure to fulfill subsequent compliance obligations that this registration implies.
• Finally, obligation to apply for a French VAT number or not is a key point to focus on; performing transactions in France without being “officially declared” could lead to harsh consequences (VAT reassessment, penalties of up to 80% of the amount of tax evaded, and late payment interest).

Filiz Alparslan is VAT and indirect tax Partner, and Zaccharie Pérais is VAT and indirect tax Associate, at Fidal.

The authors may be contacted at: filiz.alparslan@fidal.com; zaccharie.perais@fidal.com