Within the framework of the 2022 Finance Bill, it is envisaged to modify the option to tax (OTT) regime for banking and financial services.
The VAT option in the current system
As a reminder, article 260 B of the French tax code allows taxable persons who usually carry out VAT exempt banking and financial transactions as described in article 261 C, 1° of the CGI to opt for the application VAT. The OTT allows the person exercising it to benefit from a right to deduct input VAT and has a favorable impact on the salaries tax liability ratio. However, it generates the charging of VAT on the concerned services located in France, which may be economically disadvantageous compared to the exemption, depending on whether the customers are able to recover input VAT.
Under the current rules, the OTT, which is exercised for a minimum of 5 years, applies “globally” to banking and financial transactions carried out by the taxpayer, with the exception of certain transactions expressly excluded from the scope of the OTT by law (art. 260 C of the French tax code), which remain mandatorily exempt (for example, interest, agios and similar remuneration).
Towards a more flexible regime
A relaxation of this regime is currently being considered and should be proposed in the 2022 Finance Bill. The OTT, which is currently global, could henceforth become “selective”. Thus, the taxpayer could choose to apply the OTT on a transaction-by-transaction and customer-by-customer basis.
This modification of the OTT regime follows the decision of the French Administrative Supreme Court in the “EMO” case (September 9, 2020, n° 439143) which, in the field of real estate leasing, ruled that the VAT option can be exercised on a premises-by-premises basis and not necessarily on a property-by-property basis, as provided for by the French tax authorities guidelines.
Transposed to the field of financial services, this favorable development should pave the way for a considerably more refined and customized management of VAT costs.
This new regime could potentially come into force as early as the beginning of 2022.
