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France: Proposed changes, scope of funds eligible for VAT-exempt management (draft finance law 2020)

France: Proposed changes, scope of funds for VAT

The draft Finance Law for 2020 includes a provision that would revise the rules for management of funds that are exempt from value added tax (VAT).


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In general—aside from the undertakings for the collective investment in transferable securities (UCITS) rules that are regulated by an EU Directive—the new provision, as proposed, would no longer rely on a limited list of alternative investment funds as regulated under the French monetary code. Rather, the new provision would refer more generally to UCITS and other collective investment funds that “have similar features.” A list of the other collective investment funds is expected to be provided in a future “decree law” to be issued by the government.

In related comments, the French government indicated that the new definition would aim to align the French VAT treatment with the criteria identified by the Court of Justice of the European Union (CJEU) in defining qualifying funds whose management is VAT-exempt. These criteria from the CJEU include collective investment, principle of risk spreading, government or state supervision, competition with UCITS, return on investment linked to performance of assets, and investors bearing the risk connected with management of funds.

KPMG observation

The VAT proposal is being seen as clarifying the status of various alternative funds whose situation heretofore had been unclear because of the limiting reference to the French monetary code. The question of eligibility of EU alternative investment funds would appear to be more easily workable in view of the expected reference to CJEU judgments. Going forward, the issue of the treatment of non-EU funds as VAT-exempt would be again reactivated as long as the funds can qualify as a collective investment fund and satisfy all other conditions.

Currently VAT-exempt funds need to carefully monitor the situation because it could possibly generate unwanted consequences in specific circumstances (for instance, France imposing tax on salaries for VAT-exempt businesses but allowing an election from VAT on a voluntary basis). More information is expected when the details of the decree draft and administrative guideline comments are released.

Asset managers may want to consider and evaluate the implications of the new rules for the VAT status of their alternative investment funds or other-than “plain vanilla” products at this time. This evaluation would need to focus on VAT consequences as well as the implications for the taxation of salaries.

For more information, contact a tax professional with a KPMG member firm in France, KPMG Advocats:

Philippe Breton | +33 1 55 68 49 33 |

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