VAT grouping - Implementation in France
French Finance Bill for 2021
In two judgments of 21 September 2017 (BANKA and AVIVA), the Court of Justice of the European Union (CJEU) ruled that the so-called ‘groupings of means’ VAT regime for independent groups of persons (referred to in French as groupements autonomes de personnes ou de moyens, “GAP”, which can be found in article 132-1-f of the VAT Directive implemented by article 261B of the French Tax Code) does not apply to the banking and insurance sectors. According to the CJEU, services provided by a grouping to its members that carry out activities that are exempt from VAT or outside the scope of VAT, are exempt from VAT only where the group carries out an activity of general interest.
Applying the CJEU’s interpretation of the GAP, which, as noted, is found in Article 261B of the French Tax Code, would result in an additional cost for companies in the banking and insurance sector on their intra-group transactions.
To address the inequity, France has amended its VAT. Finance Law (PLF) for 2021 provides for the establishment of a VAT Group regime within the meaning of Article 11 of the VAT Directive and the modification of the scope of the regime for independent groups of persons (Article 261 B of the CGI). Under the new provisions, the regime for independent groups (GAP) would no longer apply to operations carried out in the field of health, education, and services provided by non-profit organizations.
The amendment will make it possible, under certain conditions, to consider the VAT group as a single taxable person, so that all invoicing flowing between members of the VAT Group will be considered transactions outside the scope of VAT; the group will have its own VAT number and will file common monthly VAT returns.
The VAT Group must appoint from among its members a representative in charge of all the obligations of the VAT Group. Regarding the payment of VAT, however, each member will remain jointly and severally liable. With regard to deduction rights, each member of the group will become a separate VAT business sector.
The entry into force of this new system will be gradual: the first French VAT groups will be able to emerge from 1 January 2023 for companies that will have exercised the option before 31 October 2022. The option will be valid for a period of three years.
It is urgent for banks and insurance companies to consider whether they must put into place a VAT grouping to replace a GAP, and to define precisely the scope and functioning of the VAT grouping.