France sceptical on VAT fraud split payments

The French national audit office, Inspection Générale des Finances (‘IGF’), has come out against the introduction of VAT split payments as a method to limit e-commerce VAT fraud.

Split payments, also known as Withholding VAT, requires a third party in a chain between a seller and customer to hold back the cash VAT element of a transaction, and pay directly to the tax office. The aim is to reduce VAT errors and fraud, particularly by foreign online e-commerce sellers.

The IGF made the following summary conclusions on a split payment regime for France:

• It would represent a disproportionate measure to combat fraud in terms of reconfiguration of systems of sellers and payment providers (e.g. credit card companies).
• Whilst several models already operate internationally, including restricted bank accounts (Poland) and withholding by credit card companies (Argentina), it has not be shown to remove all types of fraud. This means that revenue increases are uncertain, and related amounts of fraud are unclear.
• The adaptation costs for payment providers could also be disproportionate. The IGF puts the expense at between €1.4 and €3.4 billion.
• With plans to introduce French VAT e-invoice regime from 2023, the requirement for split payments may be obsolete.
• Lastly, the IGF pointed out that such a split payment may contravene the operation of the EU VAT Directive. As such, it would require unanimous approval by all member states.