Economic operators are increasingly seeking to take advantage of the significant potential benefit from the new French reverse charge mechanism for value-added tax (“VAT”) on imports of goods into France (“RCIVAT”).
Two and a half years after the entry into force of the “Blue Economy Act” (Loi pour l’Economie Bleue, n° 2016-816, dated June 20, 2016), it is now possible to draw up a comprehensive list of the legal and technical conditions for the application of this preferential regime.
The benefit of implementing this regime is not negligible: the RCIVAT mechanism allows any taxable person to be relieved from having to pay French import VAT to customs when importing goods and to report these import operations on its own VAT return. No tax is then paid at the time of customs clearance of the goods and the corresponding VAT is deductible as it becomes payable.
Not only does this allow ensuring the neutralization of the financial costs of VAT for taxable persons with full deductible rights, it also neutralizes the cash impact that may be caused by the payment of VAT to the customs authorities, the refund of which would have to be claimed back.
Nonresident companies should particularly benefit from this procedure. Taxable persons which are established outside of France must apply for credit refund through specific derogative procedures—the so-called 8th Directive procedure for EU-based companies and 13th Directive procedure for non-EU-based companies.
These procedures are however known to be more time-consuming and to provide less guarantee of refund than the domestic procedure.
With no French VAT credit to claim, economic operators would not have to go through to these steps to ensure financial neutrality.
Substantive Conditions for Applying for the RCIVAT
Article 1695 of the French Tax Code provides quite flexible conditions for obtaining the authorization to apply the RCIVAT scheme. As from January 1, 2017, any taxable entity, whether established in France, on the territory of a member state of the EU or outside the EU, and which is liable to pay French VAT on imports or upon withdrawal of goods from customs or tax suspensive regimes, has the possibility to benefit from the RCIVAT regime.
However, to be authorized to perform this self-assessment, the taxable person making the request must fulfill the following conditions:
- it must have had performed at least four imports into EU territory during the 12 months prior to the submission of the application: it should be noted that the 2019 Finance Actprovides that companies that do not achieve four imports but have been in existence at least 12 months will still be able to claim the benefit of the RCIVAT, provided that the three other conditions below are met;
- it must have a customs and tax records system allowing the monitoring of import operations;
- it must prove that it did not commit any serious or repeated infringements of customs or tax legislation or regulations: the Finance Act for 2019 specified that from 2020 onward this condition will be required not only from the company seeking the benefit of RCIVAT but also from its manager(s);
- finally, it must prove that it has been sufficiently financial solvent over the past 12 months.
It is also specified that taxable entities which qualify as authorized economic operators (“AEO”s) are deemed to fulfill all the conditions mentioned above.
In particular, companies established outside the EU can benefit from the RCIVAT when the customs agent they have appointed in France benefits from AEO status.
The conditions of application are almost easier to fulfill for a non-EU operator, as such operator would not have to fulfill all four conditions, only to hire a customs intermediary with AEO status. However, the non-EU operator would still have to appoint a fiscal representative, unless its state of establishment has implemented a cooperation instrument with France.
Formal Conditions to Obtain the RCIVAT
Taxable entities wishing to import into France through the RCIVAT mechanism must send an authorization request form to the main customs office in the jurisdiction of which they are importing
Once the application is submitted, the customs authorities will check whether the conditions to grant the authorization are met. The customs authorities have two months to give their answer.
Once granted, the authorization shall be valid as from the first day of the month following the date of issuance of the answer (or the day on which the two-month period has ended).
The authorization thus granted is valid for a period of three years and is tacitly renewable.
Under these conditions, any economic operator can benefit from the RCIVAT on imports and make significant cash management improvements.
This is particularly the case for foreign operators. A French-registered entity may also benefit from various suspension regimes which allow to benefit from a suspension of VAT such as:
- the free quota regime;
- the deferment of French VAT payment on import;
- the customs and tax suspensive regime.
However, most of these regimes are subject to somewhat stricter rules and implementing procedures than the French RCIVAT. The latter thus stands for foreign operators as an easy-to-implement preferential regime which allows streamlining of reporting obligations of inbound flows coming from non-EU countries into France.
In a Brexit context, the implications of which on the flow of goods largely remain to be defined, the use of the RCIVAT mechanism promises to be an important asset. From this perspective, the flows of goods from the U.K. into France, which are performed on a reverse charge basis as of today, would still be performed under an equivalent liability regime, should the French RCIVAT be applied.
Furthermore, according to the “VAT for businesses if there’s no Brexit deal” document of August 23, 2018, in case of a “hard Brexit” (i.e. an absence of exit deal between the U.K. and the EU), the U.K. tax authority, HM Revenue and Customs, has already warned that U.K. or EU entities shall no longer be able to use the electronic platform implemented by the “8th Directive” procedure in order to request credit refund of the VAT borne in the other country.
After March 30, U.K. companies will have to use the “13th Directive” procedure which entails more restrictive obligations.
The implementation of a RCIVAT scheme would thus be an efficient way to avoid many of the adverse consequences deriving from this major event.
- Analyze the flows of goods of the company performed from a non-EU member state toward France and/or study the impact of Brexit on said flows;
- Analyze whether the application of the RCIVAT would create cash flow opportunities;
- Finally, check whether the four conditions are met and apply for the RCIVAT if appropriate.
Romain Dayan is an Indirect Tax Senior Manager and Zaccharie Pérais is an Associate at Fidal, Paris.