Interpretation of article 261 B of the French Tax Code

This article was first published in our monthly newsletter Indirect Tax News. This newsletter sums up the main news in indirect tax and customs.

This ruling (Commission v/ Luxembourg case (CJEU, 4 May 2017, C-274/15)) was awaited with great interest in view of the recently delivered Advocate General Kokott’s conclusions (DNB BANKA C-326/15 et AVIVA C-605/15) and Advocate General Wathelet‘s one (Commission versus RFA C-616/15 – Read our last article on the subject).

Without any surprise, the Court withholds a restrictive interpretation of the exemption’s rule. It rules that the group is a VAT taxable person which is distinct from its members. Hence, the services performed by the group for its members are in the VAT’s scope. They are then exempted if the conditions of the article 132, §1, f) of the VAT Directive are fulfilled (or if they benefit from another exemption).

Members can perform activities subject to VAT. Indeed, the Directive does not require members to only perform exempted or out of the VAT’s scope activities. Since the law does not precise any percentage regarding the proportion of these activities, the percentage of 20% fixed by the French Tax Authorities appear to be a restriction and not a favorable measure.

In order to be exempted, the services must be directly necessary to the exempt activity of the group’s member. If the services were necessary to a VAT taxable activity, they would not benefit from the exemption of article 132, §1, f). Concerning the services both benefiting to a VAT taxable and an exempt activity, the Court seems to suggest a partial taxation/exemption of the services performed by the group.

As a conclusion, members can have a large part of their activity subject to VAT as long as the services benefit to their exempted activity.

Finally, the Court addresses the question of the deduction by members of input VAT on the expenses of the group. It ruled that VAT on these expenses could only be deducted by the group.

Resources :

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 […]

William Stemmer

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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 […]