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.
