Scope of VAT: what transactions are concerned?

Value Added Tax (VAT) applies to a wide range of economic transactions in France. Articles 256 and 256 bis of the French Tax Code (FTC) define the exact scope of this tax.

Three main categories of transactions are mainly targeted:

• Deliveries of tangible personal property: It is the transfer of the power to dispose of a material asset as an owner. (Administrative doctrine - BOI-TVA-CHAMP-10-10-40-10)
• Intra-community acquisitions: This concerns the purchase of tangible personal property by a company in France from a company located in another Member State of the European Union. (Administrative doctrine - BOI-TVA-CHAMP-10-10-40-20)
• The provision of services: This category includes all transactions that do not constitute a delivery of goods or an intra-community acquisition. (Administrative doctrine - BOI-TVA-CHAMP-10-10-40-30)

Specific rules also govern:

• Operations carried out by middlemen acting in their own name or on behalf of others (Administrative Doctrine - BOI-TVA-CHAMP-10-10-40-40).
• Transactions carried out via vouchers (Administrative doctrine - BOI-TVA-CHAMP-10-10-40-50).
• Les distance sales of goods, the role of electronic interfaces (marketplaces) facilitating these sales, and certain specific internal deliveries (Administrative Doctrine - BOI-TVA-CHAMP-10-10-40-60).

These specific cases are covered in the next chapter.

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The crucial distinction between the delivery of goods and the provision of services

Identifying whether an operation is a delivery of goods or a service is fundamental. Although the definitions are given by the FTC(article 256 II, III and IV), the qualification can be complex in some situations.

Why is this distinction so important? It has direct consequences on:

• La territoriality VAT (where the transaction is taxable).
• THEexigibility tax (when VAT must be declared and paid)
• The VAT rate applicable.
• Les thresholds determining the taxation regime (normal, simplified real regime, basic deductible).

Practical cases: mixed activities and case law

Some activities naturally combine the delivery of goods and the provision of services.

• Installation work: They include the sale of equipment (delivery of goods) and its installation (provision of services).
• Repair vs Renovation: A repair is a service (the good is still used). A renovation or transformation creating a new good is assimilated to a delivery of a manufactured good (see Administrative Doctrine - BOI-TVA-BASE-10-20-40-20, III § 140 for services with supplies).
• Photography: The simple printing of files provided by the customer is a delivery of goods. So is the serial sale of postcards or portraits. On the other hand, a shooting session ordered by a client is a service.
• Movies and Videos: Creation (composition, fixing on a support) is a service if intellectual value takes precedence over material support. The sale of numerous copies is a supply of goods (EC, Guilbaud decision of 16 January 1974, no. 86417).
• Reprography: The simple copying of documents is a delivery of goods (transfer of the medium). If important additional services (advice, complex layout, etc.) become predominant, the whole is qualified as a service provision (CJEU, 11 February 2010, case 88/09, Graphic Processus; CE, 10 June 2010, 10 June 2010, no. 296591, No. 296591, Graphic Processus, etc.) become predominant, the whole thing is qualified as a service provision (CJEU, 11 February 2010, case no. 09MA02979, EC, 10 June 2010, no. 296591, Graphic Processus, etc.).

I. Delivery of goods: definition and specific cases

Article 256 of the French Tax Code (FTC) defines deliveries of goods as one of the main transactions subject to VAT in France. Understanding this concept is essential to determine if a transaction is taxable.

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What is a supply of goods for the purposes of VAT?

According to section II of article 256 of the FTC, a delivery of goods corresponds to transfer of power to dispose of tangible good as an owner. This means that the buyer acquires the essential prerogatives of the owner (use, enjoyment, disposition).

For a supply of goods to be subject to VAT, several conditions must be met:

1. It must be carried out by a taxable person: That is to say a person carrying out an economic activity independently (see Administrative Doctrine - BOI-TVA-CHAMP-10-10-20 for the definition of a taxable person).
2. It must relate to tangible good: These are material goods (furniture). Electricity, gas, heat and cold are considered to be physical goods. Intangible assets (patents, brands, etc.) fall within the scope of services, and immovable property follows specific rules (FTC, art. 257, I).
3. It must involve a transfer of ownership (or the power to dispose of it): The most common case is the sale, where the agreement on the thing and the price is usually enough to transfer the property.
4. It must be carried out at a cost: There must be a consideration (money, other goods, services), even if the transaction is carried out “at cost”. Free deliveries are in principle not subject to VAT (except for exceptions such as certain levies).

Important point: Sales of second-hand goods used for business are taxable if these goods were eligible for VAT deduction at the time of their acquisition. Otherwise, they are exempt (FTC, art. 261, 3-1°-a).

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What transactions are assimilated to the supply of goods?

The FTC treats certain transactions to deliveries of goods, even if they do not correspond exactly to a traditional sale:

• The transfer of ownership following a Requisition of public authority (FTC, art. 256, II-3°-a).
• The physical delivery of a good under a contract of rent-sale, of installment sale with a clause of transfer of ownership at the last payment, or of sale with reservation of title (FTC, art. 256, II-3°-c and d). Here, it's the physical handover that counts, not the deferred legal transfer of ownership.
• The exchange of one good for another good (considered a double sale) or against a service.
• The consumer loan (relating to goods that are consumed through use, such as raw materials), as there is an immediate transfer of ownership (Civil Code, art. 1893).
• The collection of goods by an associate if his account is debited in return.

Attention: The furniture leasing (leasing) is NOT a delivery of goods upon delivery of material. It is a rental with an option to buy. The sale only takes place if the option is exercised.

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Special case: distance sales of goods

The rules specific to distance sales of goods (VAD), in particular those facilitated by electronic interfaces (marketplaces), are detailed in the Administrative Doctrine - BOI-TVA-CHAMP-10-10-40-60.

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Transfers of goods between EU member states

The III of article 256 of the FTCintroduces a specific concept: the intra-community transfer. It is the dispatch or transport, by a taxable person or on his behalf, of a company's goods from France to another EU Member State, for the needs of his business (stock movement, transfer of investment good to a branch, etc.), There is no sale at this stage.

This transfer is assimilated to a supply of goods taxable in France (generally exempt as intra-community delivery) and correlatively to an intra-community acquisition taxable in the Member State of arrival.

Exception: This regime does not apply to flows with the overseas departments (which are import/export) or if the goods are immediately exported from the Member State of transit.

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Trial sales

When a good is sent to another Member State for testing by the customer before confirming the sale (suspensive condition), the initial shipment is not a taxable transfer. Intra-community delivery only takes place when the tests are successful and ownership is transferred.

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Exceptions: when a good movement is not a taxable transfer

Some movements of goods to another Member State are NOT considered taxable transfers, even if they are made for business needs:

1. Temporary use giving rise to the right to temporary admission (AT): If the good is sent to be used temporarily (max 24 months) under conditions that would allow you to benefit from TA in total exemption if it were imported (e.g. professional equipment, goods for exhibition, educational material, molds, etc.). The good must return to France.
2. Temporary use for the provision of services: If the good is sent temporarily (max 24 months) to provide services in the other Member State and then comes back to France as it is (except goods consumed during trials).
3. Goods sent for work or expertise: If a good is sent to undergo a repair, a repair, an expertise, etc., and it is then sent back to France to the client (or directly to its customer in France).
4. Goods for assembly or installation: If the goods are sent to be assembled or installed in the Member State of arrival (delivery takes place in this State).
5. Goods for delivery on board means of transport: Goods intended to be sold (to be taken away or consumed on site) during intra-Community passenger transport.
6. Gas or electricity: Transported for delivery whose place is located in the other Member State.

Important: If the conditions of one of these exceptions cease to be met (e.g.: the good remains for more than 24 months, it is sold on site instead of coming back), the transaction becomes a taxable transfer when the condition is no longer met.

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Focus on stocks under a deposit contract (EU consignment regime)

A simplified regime exists for stocks called “under deposit contract” or “consignment contract” (FTC, art. 256, IIIbis). It allows a French supplier to send goods in stock in another Member State, at the disposal of an identified customer, without carrying out a taxable transfer at the time of shipment.

Conditions to benefit from this regime:

• The goods are shipped by the supplier (or on his behalf) to another Member State to be delivered there later to a pre-determined purchaser.
• The supplier did not no permanent establishment in the Member State of storage.
• The purchaser is identified for VAT in this Member State and communicates his number to the supplier before dispatch.
• The supplier maintains a specific register of these assets (FTC, art. 286 quater, I-2).
• The supplier declares the movement on the summary statement (EC sales list) with the identity and VAT number of the purchaser.
• The actual delivery (transfer of ownership to the purchaser) takes place within 12 months following the arrival of the goods.

If all of these conditions are met:

• The initial shipment is not steps a taxable transfer for the supplier
• The supplier makes a exempt intra-community delivery only when the purchaser removes the goods from stock (within the limit of 12 months).
• The supplier must report this initial movement on the DEB (without value) and keep the record. A pro forma invoice is recommended. The final invoice is issued at the time of collection.

If the conditions are no longer met (e.g.: exceeding 12 months, change of purchaser, good destroyed, return to France), the classic transfer rules apply (or other rules depending on the situation).

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II. Intra-community acquisitions and VAT: what you need to know

Article 256 bis of the FTCregulates the taxation of intra-community acquisitions of tangible personal good subject to VAT.

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What is an intra-community acquisition?

It is the obtaining, by a purchaser in France, of the power to dispose as an owner Of tangible personal good that has been shipped or transported from another EU member state to France (by the seller, the purchaser or on their behalf).

Two key conditions:

1. Transfer of the power to dispose of the good (similar to the delivery of goods).
2. Physical flow of the good from another Member State to France.

Accuracy: Exchanges with the French overseas departments are not intra-Community acquisitions but fall under the import regime. The fact that the seller charges VAT in his country (by mistake or non-compliance with the exemption conditions) does not exempt the purchaser from taxing the intra-community acquisition in France.

The diet of stocks under a deposit contract (seen above) has an impact: the intra-community acquisition by the customer only takes place when he takes possession of the goods in the stock (within the limit of 12 months), and not at the physical arrival of the goods in France.

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Transactions assimilated to an intra-community acquisition

Section II of article 256 bis of the FTC equates certain transactions to intra-community acquisitions, even without direct sale:

1. The allocation in France by a taxable person of a company's goods shipped from another Member State: It is the equivalent of the “transfer” on the delivery side. A taxable person who moves an asset (stock, investment) that he owns in another Member State to France for the needs of his business makes a taxable intra-Community acquisition in France.
   • Exceptions: It is not an acquisition if the good is intended for distance sale, if it is immediately exported from France, or if it only passes through France between two other Member States.
2. The receipt in France of goods imported into another Member State by a legal person not subject to taxation: If a non-taxable entity imports an asset into country A of the EU and then brings it to France, it makes an intra-community acquisition in France (subject to the derogatory regime).

Exceptions: when an assignment is not a taxable intra-community acquisition

As with transfers, some movements of goods from another Member State to France for business needs are not steps considered as taxable intra-community acquisitions (article 256 bis, II-2°):

1. Temporary use giving rise to the right to temporary admission (AT): If the good arrives to be used temporarily (max 24 months) in France under conditions that would allow you to benefit from AT (professional equipment, exhibition, etc.) and that it then leaves again.
2. Temporary use for the provision of services: If the good arrives temporarily (max 24 months) to allow the foreign taxable person to provide a service in France and then leaves as it is.
3. Goods received for work or expertise: If a good arrives in France to undergo a procedure, repair, expertise, etc., and is then sent back to the ordering taxable person in the Member State of departure.
4. Goods intended to be assembled or installed in France: The delivery is then located in France (F, art. 258, i-B).
5. Goods for delivery on board means of transport: If the goods arrive in France to be sold on board during a transport whose departure is in France (FTC, art. 258, i-D).
6. Gas, electricity, heat or cold: Transported for delivery located in France (FTC, art. 258, III).

Important: If the conditions for an exception are no longer met (overdue date, sale in France, etc.), the transaction becomes a taxable intra-community acquisition.

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Trial sales

As for deliveries, if a good arrives in France from another Member State as part of a trial sale, the initial receipt is not a taxable intra-community acquisition. The acquisition only takes place when the tests are successful and the ownership is transferred to the French purchaser.

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Tax regime for intra-community acquisitions

In principle, intra-Community acquisitions made for consideration by a taxable person (or a non-taxable legal person) from a taxable seller are subject to VAT in France.

Key exclusions:

• Purchases from a seller benefiting from the franchise based in his country.
• Goods installed or assembled in France by the seller (taxable as internal delivery).
• Goods falling under distance sales.
• Purchases by individuals (except new means of transport - FTC, art. 298 sexies).

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The Exemption Regime (PBRD)

Some people, although making intra-community acquisitions, may benefit from a Exemption regime exempting them from submitting these transactions to French VAT (FTC, art. 256 bis, I-2°).

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Persons concerned (known as “PBRD” - Persons benefiting from the Exemption Scheme):

• Non-taxable legal persons (associations under the 1901 law for their non-profit activities, local authorities, etc.).
• Taxable persons carrying out only transactions that do not give rise to the right to deduct (e.g. beneficiaries of the franchise under article 293 B of the FTC).
• Farmers receiving lump-sum reimbursement (FTC, art. 298 quater and quinquies).

Threshold condition: This regime applies if the total amount of intra-Community acquisitions (excluding VAT, excluding new means of transport and products subject to excise duties) has not not exceeded €10,000 the previous calendar year AND does not exceed €10,000 in the current calendar year. As soon as the threshold is crossed during the year, the acquisition that causes the violation and the subsequent ones become taxable.

Exclusion of the derogatory regime: It never applies to the acquisition of new means of transport or to products subject to excise duties (alcohol, tobacco, mineral oils).

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Option for the taxation of intra-community acquisitions

A PBRD can choose (opt) to voluntarily submit its intra-community acquisitions to French VAT, even if it is under the threshold of €10,000 (FTC, art. 260 CA).

• Modalities: Option written to the tax service, takes effect on the 1st day of the month in which the declaration is filed.
• Duration: Covers the year of the option + the following 2 calendar years.
• Renewal: Tacit, for a period of 2 years.
• Whistleblowing: Written, 2 months before the end of the option period.
• Consequence: The PBRD obtains an intra-community VAT number and must declare and pay VAT on its acquisitions.

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End of the derogatory regime

A PBRD loses the benefit of the derogatory regime and must subject its acquisitions to VAT if:

• It exceeds the €10,000 threshold.
• It no longer meets the conditions to be a PBRD (becomes subject to the right to deduct, leaves the fixed agricultural regime, etc.).
• She voluntarily opts for taxation.

In these cases, she must identify herself for VAT (FTC, art. 286 ter).

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III. Services and VAT: definition and examples

The I of article 256 of the FTC subjects to VAT the provision of services carried out for consideration by a taxable person acting as such.

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What is a service provision?

In general, the IV of article 256 of the FTCdefines the provision of services as all transactions that are not deliveries of goods. This category is therefore very broad and includes in particular:

• Les transfers or concessions of intangible assets (patents, brands, licenses, non-specific software...) (Administrative doctrine - BOI-TVA-CHAMP-10-10-30).
• Les rentals of tangible personal good (vehicles, equipment...) (Administrative doctrine - BOI-TVA-CHAMP-10-10-50-30, I § 10 to 30).
  • Special case (RES N°2005/94): The provision of specific tools (plates, cylinders) invoiced separately from the delivery of products printed with these tools is considered to be ancillary to the delivery of goods if the tools are only used for this specific delivery. If the tools can be used for other purposes for the customer, their provision is a separate rental of movable good (service provision).
• Les rentals of intangible personal good.
• Les rentals of real estate (subject to specific rules, often exempt unless optional) (Administrative doctrine - BOI-TVA-CHAMP-10-10-50-20 and BOI-TVA-CHAMP-10-10-30).
• Les transports of goods or persons and ancillary benefits (Administrative Doctrine - BOI-TVA-CHAMP-20-50-20).
• Les real estate work (see next section).
• Les sales to be consumed on site (restoration) (Administrative doctrine - BOI-TVA-CHAMP-20-50-30, V-A § 590).
• The operations of transparent intermediaries (acting in the name and on behalf of others).
• Les custom work (transformation of a good supplied by the customer) (Administrative Doctrine - BOI-TVA-CHAMP-10-10-50-10).
• Les studies, research and expertise (Administrative doctrine - BOI-TVA-CHAMP-10-10-60).
• The Industry Lease or contract of employment (performance of work in exchange for remuneration).
• The obligation to Do not do Or of Tolerate Can't act or the situation.
• Operations on currencies, notes, shares, bonds (excluding collector's money and titles representing goods or real estate) (FTC, art. 256, IV-2°).
• Fulfilment of the Obligations of Fiduciary (FTC, art. 256, IV-1°).

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Focus on real estate work

The distinction between real estate work (provision of services) and sale of equipment with installation (delivery of goods + provision of ancillary services) is crucial. Are considered real estate works:

1. Construction and demolition work:
   • Building work (masonry, carpentry, integrated carpentry, plumbing, basic electricity, etc.).
   • Public works (roads, bridges, canals, etc.).
   • Integrated metal structures (silos, hangars, pylons...).
   • Land development modifying the relief (earthworks, demolition, heavy land clearing...).
   • Are not real estate works but services associated with the building: maintenance dredging, research (water, oil), soil studies, unproductive mining surveys, cleaning (varnishing, sweeping), agricultural work (ploughing, reforestation), assembling/renting scaffolding (unless the service provider also carries out the work).
2. Building equipment work:
   • Installing items Definitively incorporated, the removal of which would cause significant damage to the element or the building (central heating, sanitary, integrated electricity, central air conditioning, elevators, partitions that are not easily moved, glued floor coverings, collective antennas...).
   • Are not real estate works (sale + installation): Installation of simply connected devices (household appliances, mobile electric heaters, lights), furniture simply fixed for stability (shelves, mirrors), industrial machines (even fixed to the ground, if removable without destruction).
3. Repair or repair work:
   • Rehabilitation of a building or a real estate installation by replacing or adding integrated elements (renovation, roof repair, boiler replacement, frame treatment, etc.).
   • Are not real estate works: Simple maintenance (cleaning, greasing, adjustment) unless it is an accessory for larger repair work.

Specific case: Factory construction, transport and assembly on site of Very Heavy Industrial Equipment (power plant type) can be considered as a Delivery of Moveable Goods Unique if assembly is the essential completion of manufacturing (CE, 3 March 1976, no. 94749, Fives-Penhoët).

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Other specific services

• Greenhouse gas emissions trading: The transfer of these intangible rights is a taxable service provision (FTC, art. 256).
• Ijara contract (Islamic finance): Analyzed as a rental (provision of services) potentially followed by a sale. (Administrative doctrine - BOI-DJC-FIN-30).
• Channel sales: The transfer of the “right to be delivered” by intermediaries is a provision of services (transfer of intangible rights), as is the fact that the first seller accepts the substitution of the end customer. These benefits are taxable at the standard rate, regardless of the rate of the underlying property. (Administrative doctrine - BOI-TVA-BASE-10-20-10, IV-B).

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Conclusions

Determining whether a transaction falls within the scope of VAT is a fundamental step. As detailed in this document, French law, via articles 256 and following of the FTC, precisely defines taxable transactions.

This mainly includes Supplies of Tangible Personal Good And the Provision of services, carried out for consideration by a taxable person. The distinction between these two categories, although sometimes complex (especially for real estate works or mixed transactions), is essential because it conditions the rules of territoriality, exigibility and applicable rates.

Specific regimes also exist for intra-community transactions (acquisitions, transfers, inventory regime under a deposit contract), Distance Sales, as well as for certain specific services such as those of Middlemen (transparent or opaque) or tea Sales in the sector.

A good understanding of these rules, informed by case law, is essential to secure business operations with respect to VAT.