Deloitte Société d'Avocats

Input VAT Recovery Rights of the French branch of a Foreign Financial Institution

The Administrative Court of Appeal of Versailles recently held a decision regarding the VAT deduction rules applicable to expenses incurred by a branch established in Paris serving both its customers and its UK head office (HO).
This decision is not yet final (as a second appeal could still be lodged until 2nd April according to the public information available).

The facts are as follows : the French branch of a UK-based financial institution has elected for the payment of VAT on the financial services supplied to its customers. Therefore, it deducted 100% of the VAT incurred on its costs. Part of the branch costs were allocated to its HO in consideration for services supplied by the branch.

Further to tax audits, the French Tax Authorities (FTA) took the following position :

Litigation proceedings were initiated.

In a nutshell, the Court position is as follows (as pictured below) :

This decision seems questionable since it considers that internal transactions within the same legal entity should deny the VAT recovery right. This is not the case at a national level. With regard to transnational flows, we do not see why it would be different.

To be followed…