Financial allocation

A long-term care establishment (EHPAD) was subject to VAT reassessments on the ground that the general administration, functioning and buildings maintenance costs could only be deducted in accordance with the prorata.

Based on ECJ case law “AB SKF”, the Conseil d’Etat enunciates that the existence of a direct and immediate link implies, both for expenses which may be allocated and for overhead costs, that the upstream supplies costs are respectively incorporated in the price of the particular downstream operations or in the price of goods or services provided by the taxable person as part of its business activities. The Conseil d’Etat also considers that the VAT related to the expenses used both for taxable and exempt operations may be fully recovered, in the situation where the company is required to pass on the totality of the expenses costs solely into the price of the taxable operations.

Therefore, the financial allocation prevails over the functional allocation.

We consider at this point that the solution identified by the Conseil d’Etat must be confined to the EHPAD’s case, that is where the applicable regulation (here, the Social action and families Code) compels to allocate these costs to determined taxable amounts.

Michel Guichard

Michel Guichard, as a Partner, was responsible for the Indirect Tax (VAT Customs) practice and then for the Tax Litigation practice dedicated to assisting clients in national and EU litigation. […]

Bertrand Jeannin

Bertrand Jeannin, Partner, supplies strategic and technical advice to French and foreign multinational groups in all aspects of their VAT and customs policies. He regularly assists his clients in the […]

Nicolas Kazandjian

Barrister registered with the Hauts-de-Seine Bar, he started my career in the indirect tax service line of Deloitte Société d’Avocats in 1999. My current position is Director. My area of […]

Vanessa Irigoyen

With more than 16 years of experience, Vanessa has extensive expertise in the implementation of international efficiency business models for customs, export control and indirect tax purposes. Her functions notably […]

Anne Gerometta

Anne Gerometta is Indirect Tax Partner of Deloitte Société d’Avocats. She advises international groups on their indirect tax issues. Anne notably assists operators from the Financial Sector – bank, insurance […]

Delphine Nicault

Delphine Nicault is an Attorney-at-Law at the French Bar. She joined Deloitte in 2002 and assists her clients on day-to-day VAT issues. She developed an expertise in the VAT and […]