A key measure of the 2021 Finance Act, the "VAT Group" allows a group consisting of several entities to be considered as a single VAT taxpayer. While this scheme exists in many European countries, its implementation in France is set to take effect on January 1, 2022, with application starting from January 1, 2023. What are the impacts and limitations of the French VAT Group?

Update 07/10/2022 : As the deadline (October 31, 2022) approaches for opting to create a VAT Group, many uncertainties remain regarding the tax doctrine, as no official bulletin has yet been issued by the Tax Administration. Additionally, the accounting treatment of the "reversal" of VAT positions from the various VAT Group members to the single taxpayer has not yet been clarified by the accounting regulator. The issue has become urgent, considering the potential adjustments to accounting data models that businesses may need to make (chart of accounts, accounting schemes, centralization entries, and even accounting for internal cash flows). Only Decree No. 2022-1033 of July 20, 2022, related to the deduction of value-added tax and invoicing obligations for single taxpayers, has clarified some provisions regarding the creation of distinct business sectors and the calculation of the VAT deductibility coefficient. Finally, regarding invoice formalities, the decree of July 20 specifies, in Article 242 nonies A, the elements to be mentioned.

What is the VAT Group?

The "VAT Group regime" or VAT grouping:

  • Is a new system that allows Member States to treat certain companies as a single VAT taxpayer, even if the companies are legally independent but closely linked financially, economically, and organizationally;
  • It was created by Article 11 of the European Directive 2006/112/EC of November 28, 2006, regarding the common system of value-added tax ("VAT Directive") and transposed into French law by Article 162 of the 2021 Finance Act No. 2020-1721 of December 29, 2020.

 

The VAT Group: A Substitute for the 261 B Grouping

The new VAT Group regime will replace an existing system: Article 261 B of the French General Tax Code, the scope of which has been reduced following a ruling by the CJEU.

This regime allows bankers and insurers to exempt VAT on services provided between parties carrying out VAT-exempt activities, when they form a group. To this end, Economic Interest Groups (EIGs) have been created by financial institutions, grouping subsidiaries within the same company, which are also members of the EIG.

This system is crucial for banks and insurance companies because these entities can pool resources with intra-member billing, outside the scope of VAT. Thus, the re-invoicing within the group to its members, when done in euros, was exempt from VAT.

However, in September 2017, the European Court of Justice denied VAT exemption for the provision of resources within a group for activities other than those of general interest. The European judges excluded financial services and insurers from the 261 B grouping scheme. The VAT Group, as described in Article 256 C of the CGI, will allow banks and insurers to overcome their exclusion from the 261 B regime starting January 1, 2023.

 

What are the Conditions to Create a VAT Group?

The system applies to all companies, all scopes, and external flows. The entities concerned (the concept of "close links") are specified in Article 162 of the 2021 Finance Act.

  • The economic activity's headquarters or the permanent establishment must be in France.
  • Cumulative conditions of financial, economic, and organizational links must be verified.
  • An entity can only be a member of one VAT group.

 

VAT Group: What are the Practical Modalities?

  • The option will be mandatory for a minimum duration of 3 full calendar years.
  • The entity must designate a representative responsible for fulfilling the VAT Group's reporting obligations, and intra-group re-invoicing is exempt from VAT. The representative of the single taxpayer must submit to the tax authorities, by January 31 of the current year, the list of VAT Group members as of January 1 of the same year.
  • The establishment of the VAT Group will not impact other taxes, duties, rights, and levies of any kind that the members are liable for.
  • Solidarity responsibility will be established for VAT Group members toward the head of the group.
  • In practice, it will be necessary to configure the information systems.

 

Based on VAT group simulations conducted with our clients or examples of structures that will implement a VAT group, feedback is mixed: this new scheme is not suitable for everyone, and a differentiated approach must be developed to account for the specifics of different actors. However, from these observations, it appears that the VAT group will be more specifically suited for:​

  • A group consisting of French permanent establishments of foreign structures.
  • A group of financial sector companies that wish to preserve the benefits associated with Articles 261 B and 261 C of the CGI; the VAT Group, not being a mere consolidation of flows, may indeed be very unfavorable to entities that benefit from a deduction coefficient of 100%.
     

At this stage, and for other actors, it seems urgent to wait for the first feedback experiences.​

 

RSM can assist you in implementing the VAT Group and anticipate its application:

  • Identification of the application scope based on activities,
  • Identification of group structures (EIGs, pooling arrangements, informal groups, others...),
  • Definition of the adapted organizational structure,
  • Structuring of financial information (accounting, management control, invoicing),
  • Listing of internal re-invoicing (nature, volume, available data, current compliance with Article 261 B, future eligibility for Article 256 C...),
  • Overhaul of governance and tools,
  • Compliance with new reporting obligations.

Author

Anne Seibel
Senior Manager - Juridique & Fiscal

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