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Groupe TVA: Between dream and disappointment

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The Finance Act 2023 (No. 2022-1726) slightly amends the new VAT group regime, which entered into force on January 1, 2023. This promising regime created by the Finance Act 2021 allows French companies to create among themselves a group in which they are neutralized Internal operations in relation to value-added tax. In other words, the now non-deductible VAT affects neither members’ margins nor intra-group flows. After formulating the first options for creating a TVA group, a mixed initial assessment can be drawn up, both in form and in content.

Building the first teams was epic

In an FAQ posted on impots.gouv on Oct. 6, Public Administration
des Finances Publiques has specified that companies wishing to create a VAT collection on January 1, 2023, have to submit the scope declaration electronically via the EDI procedure before the end of the year, in addition to the formality provided by law.

Choosing to make an excessive commitment in the FAQ is devoid of any value
Legal, led to a confusing situation. This confusion increased when this mandatory statement was not repeated in the comments posted to BOFiP on October 25, 2022.

As of December 31, 2022, many companies are unable to submit their domain declaration in EDI, due to the lack of necessary IT developments on the part of the software publisher. Thus, the General Directorate of Internal Security was forced to open an additional filing period in the face of practitioners’ objections.

Anticipate the necessary financial consequences

Many questions remain about withholding rights. The companies concerned would have appreciated more flexibility in the rules for determining deduction rights from the tax authorities. Their practical implementation within the group is complex and could have significant financial implications for companies that did not take appropriate action on these rules prior to the formalization of the option.

In fact, creating a group can significantly reduce the right to deduct VAT on purchases for non-tax-exempt members. To remedy this, members should consider the possibility of choosing to apply a single tax coefficient to accommodate the entire group.

Moreover, neutralizing intra-group transactions (previously subject to VAT) has negative implications for calculating the liability-to-tax ratio on the salaries of group members. Taxable persons who are not subject to payroll tax prior to their incorporation into the group can quickly become liable for this tax.

It is clear from this initial assessment that the entry into force of the first French VAT packages has had a difficult start. If the goals of simplifying and neutralizing the effects of VAT for non-recovery sectors justify the creation of a VAT group, companies should be aware of the complexity created by this system over deduction rights and the resulting additional cost of payroll tax.

The coming months should make it possible to assess the range of benefits expected from companies that have chosen this system, in addition to the impact of opening tax audit procedures within the group on them.

Tribune written by Martin Regeasse – tax attorney and managing partner at CF société d’Avocats

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