Indirect Tax News - July 2022

Nonresident suppliers of distance sales have opportunity to regularize French VAT liabilities

The French Tax Administration (FTA) released a circular on 22 May 2022 that encourages taxable nonresident businesses that made distance sales into France before 1 July 2022 to voluntarily regularise their VAT liabilities relating to certain sales of goods to French consumers. Suppliers that take advantage of this “amnesty” will be subject to late payment interest of 0.2%, but no penalties.

The VAT treatment of distance sales in the EU was revised on 1 July 2021 when the EU VAT e-commerce package became effective (for prior coverage, see the article in the June 2021 issue of Indirect Tax News). Before that date, distance sales of goods were subject to VAT in the country from which the goods were shipped until the supplier’s annual taxable turnover exceeded a threshold set by the country where the customers were located—these thresholds ranged between EUR 35,000 and EUR 100,000. Once the relevant threshold was exceeded, the supplier was required to register for VAT in the country of its customers, charge VAT at the applicable rate and remit the VAT collected to the local tax authorities. The EU e-commerce package substantially changed these rules. The annual distance sales turnover threshold is now EUR 10,000 for all distance sales in the EU (rather than member state by member state), and once the threshold is exceeded, VAT is charged in the member state where the consumer is located and an online supplier may elect to register for VAT in a single member state.

Following the above EU-wide changes, the FTA observed that certain businesses should have been registered for VAT because they exceeded the French annual VAT registration distance selling threshold of EUR 35,000 for the period or periods before 1 July 2021. To encourage these businesses to bring themselves into compliance, the May circular introduces a four-month amnesty period—until 30 September 2022—during which affected suppliers can submit a request to the FTA and voluntarily disclose and rectify their VAT situations relating to sales of goods to French consumers. Only businesses that have not been subject to a VAT audit in France and that actually paid VAT in the member state of dispatch can participate in the amnesty. The request can relate to distance sales made in 2019, 2020 and 2021.

Businesses that do not take advantage of the amnesty period may leave themselves open to certain risks. Specifically, if the FTA initiates a tax audit on the grounds that the business failed to register for VAT in France, the normal three-year statute of limitations period may be extended for up to 10 years, and a penalty equal to 80% of the VAT amount due may be imposed, along with late payment interest at a rate of 0.2% per month and a penalty for failure to submit an Intrastat return (if applicable).

Andréa Lopes

David Hirsch

Sébastien Larrivee