New conformity requirements for software and cash desk systems were essentially put in place to address potential manipulation by businesses of IT systems that could allow them to modify their turnover and effectively pay less tax. The topic is currently being addressed among a range of OECD countries, with each approaching the issue through its own specific view.
In France, following the adoption of the 2018 Finance Bill, all IT environments that record transactional and payment data about VAT-able transactions with customers (that is, record at the origin of the sales transaction along with the accounting result and turnover) must be secured pursuant to the conditions set forth by Article 286 I, 3° bis of the French tax law. These conditions are that the IT environments must be unalterable and secure and must provide for appropriate record retention and archiving.
Companies conducting business in all forms (e.g., “brick & mortar” stores, e-commerce platforms, intermediaries or franchises) and that are established and registered in France for VAT purposes, whether acting as the seller or the service provider in transactions involving individual customers (even if only a few customers), need to determine as soon as possible that their systems comply with the rules. Furthermore, software editors and integrators need to be ready to deliver proof of conformity to their users.
A “checklist” in this regard would include the following:
Adequate communication would be needed for users of systems that are subject to the tax conformity rules because these businesses could be subject to “unannounced” visits by agents from the French tax authorities, who would seek to verify the availability of a proof of conformity. Failure to provide such a proof would be subject to penalties and could possibly trigger more in-depth audits of the systems within a framework of a tax audit under a suspicion of non-conformity.
Following extensive discussions with stakeholders, the French tax authorities commented that 2018 was deemed a “test year”and that it was their intention to take into account feedback following the initial first months of implementation. As a consequence, the French tax authorities updated previous guidelines (4 July 2018). Read TaxNewsFlash
For example, section 35 of the updated guidelines now introduces a tolerance that, under certain conditions, the subject companies will not need to have their systems certified (or attested). This tolerance takes into account the types of payment allowed and the processing of the payments via credit institutions, and is based on considerations of the French tax authorities that there may be other existing methods to obtain data from the business, other than under the tax conformity requirements (for instance, the “communication right”). This tolerance is subject to conditions that need to be carefully scrutinized.
Beyond the penalty implications, there could be serious reputational harm for businesses that are found not to have a valid proof of conformity. The risk of a full IT audit also needs to be considered, keeping in mind that very strict sanctions could be imposed if fraudulent operations are found to exist (whether these are discovered at the level of the user, at the level of the software editor, or at the level of potentially all third parties or intermediaries that helped provide the system).
Many companies have already launched a process for obtaining a proof of conformity. With regards to the process of certification, accreditation bodies may require significant preparation to satisfy certain conditions. The accreditation bodies do not all follow the same procedures, so this may result in issues when starting the process of deciding how to advance towards conformity. Moreover, there are certain “temporary” methods that may be used to demonstrate conformity with the new rules. This process may offer a level of comfort as the process of conformity is finalized.
For more information, contact a tax professional with Fidal* in France:
Laurent Chetcuti | + 33 (0) 1 55 68 14 47 | email@example.com
François Warcollier | + 33 (0) 1 55 68 15 06 | firstname.lastname@example.org
* Fidal is a French law firm that is independent from KPMG and its member firms.
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