France: Introduction of VAT group regime

France: Introduction of VAT group regime

The draft Finance Bill for 2021 includes measures to introduce a value added tax (VAT) group regime.

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With the proposal for a VAT group regime, entities that are legally independent but closely linked to each other financially, economically, and organizationally could be treated as a single taxable entity for VAT purposes. The proposal, thus, would effectively transpose into French law the VAT group regime provided for in Article 11 of the EU VAT Directive (and therefore generally following the transposal actions of most other EU Member States).

In its capacity as a single taxable entity, represented by one of its members, the VAT group would be the only entity recognized for VAT purposes and would have to file a single VAT return. This VAT return would report the aggregate amounts of all transactions conducted by members of the VAT group with third parties—both as the buyer and the seller. Transactions that are “internal” (that is, between members of the VAT group) would be disregarded for VAT group regime purposes.

The formation of a VAT group would be optional and would be made by means of an election filed by the entities. The election would be valid for an initial period of three years. No entity would be required to join the VAT group, even if the entity were eligible to join the group. Thus, there would be a certain degree of freedom regarding formation of the VAT group.

Entities seeking to form a VAT group would be able to make the election before 31 October 2022, with application of the VAT group being effective, at the earliest, 1 January 2023. As of the beginning of 2023, thus, the cost-sharing exemption regime (CGI, art. 261 B) would cease to apply with regard to financial and insurance sectors. 

KPMG observation

Tax professionals have noted that the VAT group regime measure may be of particular interest for entities in the financial and insurance sectors. Regardless of the industry or sectors, entities need to carefully consider the consequences of making an election under the VAT group regime.

What is next ?

The Finance Bill for 2021 is expected to be subject to discussion and debate by the Parliament during the fall 2020, with enactment anticipated by mid December 2020. Read TaxNewsFlash


For more information, contact a tax professional with KPMG Avocats in France:

Philippe Breton | +33(0) 1 55 68 49 33 | philippebreton@kpmgavocats.fr 

Armelle Courtois-Finaz | +33(0) 1 55 68 49 43 | acourtois-finaz@kpmgavocats.fr

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