France at odds with EU on VAT Recovery rules

Tue 1st Jan 2013

The French VAT recovery claims procedure is now at odds with the European Union following recent tax rulings on the 8th Directive VAT Recovery Directive.

The 8th Directive provides a mechanism for the EU countries without a permanent establishment and VAT number in Franceto recover any French VAT suffered.  For example, attending conferences or buying local goods for non-export. France also makes extensive use of the EU Reverse Charge rule as a way of preventing foreign companies from seeking to French VAT registering.  This means VAT Recovery is an important alternative for foreign businesses.

In a recent case at the European Court of Justice, it was held that the if a company has a 1) permanent establishment from which it can 2) operate, then it may not use the 8th Directive VAT Recovery mechanism.  However, the French tax code does not require that a company satisfies both conditions to be refused French VAT recovery.  Instead it must use a VAT registration.  A change of the French tax code may therefore be required.