France to end Administration Tolérance for VAT non-resident businesses in October
Non-resident businesses in France, which may be French VAT registered under Administration Tolérance, allowing them to charge French VAT, should take note that this scheme will now not be available with effect from 1 October 2012. This was announced in accordance with a 2011 ECJ judgement in a French tax notice of 7 June 2012.
French reverse charge on VAT for non-residents
By way of background, a standard VAT regime used to exist in France applicable to non-resident businesses. In September 2006, however, under the new Art. 283-1 CGI, the legislation changed. The recipient company instead accounted for French VAT under the reverse charge. One downside was that non-residents were unable to recover French input VAT by deduction through their French VAT return. Instead, input VAT was recovered by EU businesses using an 8th Directive cross-border claim to the French VAT refund office. Historically this could be a protracted process with negative cash-flow implications.
As a result, the French tax office made a special facility available called the Administration Tolérance. Subject to formal customer agreement and the appointment of a VAT Fiscal Representative (FR) known as a Répondant , the supplier could continue to remain VAT registered and charge and collect French VAT, just as they had done before.
It is not actually considered that many non-resident companies availed themselves of this particular scheme. It was unlikely to be promoted by French VAT registered customers, as it disadvantaged them in terms of cash-flow. Also, France established a prompt 8th Directive VAT refund service, with non-residents receiving payments within three months.
Nevertheless for those that are affected, decisions will require to be made on the way forward. This may stimulate non-resident businesses to step forward and form a company as a PE, and hence enjoy a standard VAT regime applicable to any other domestic French business. Alternatively if they remain as non-resident, then they would VAT de-register and set up their systems for quarterly VAT refund claims to be submitted.