The Social Security Financing Bill for 2024 plans to extend the benefit of the VAT group regime to companies not subject to salaries tax.
As a preliminary reminder, salaries tax is in principle due by French established employers who have had less than 90% of their turnover subject to VAT in the previous year.
As a consequence, the setting up of VAT group is not neutral in terms of salaries tax liability. Indeed, intercompany flows within the VAT group are not subject to VAT, and are therefore considered as such for the purposes of salaries tax calculations, which may lead to an increase in the salaries tax liability ratio of companies opting for the VAT Group and/or bring within the scope of the salaries tax companies that would not have been subject to it had they not been part of a VAT group. Therefore, in practice, the interest for setting up French VAT group has mainly been reserved until now for companies operating in economic sectors that are exempt from VAT and already subject to salaries tax, mainly companies in the financial sector.
In order to allow the opening up of the VAT group regime to a greater number of operators and in particular to industrial groups fully subject to VAT and therefore not subject to salaries tax, the bill provides (Article 8 bis) for a specific exemption from salaries tax applicable to members of a VAT Group if they meet the following cumulative conditions:
- The member in question would not be subject to salaries tax if he did not belong to the VAT Group.
- In respect of the calendar year preceding that in which the remunerations are paid, the turnover corresponding to transactions opening a right to recover VAT performed by VAT Group as a whole shall be at least equal to 90% of its total turnover.
This exemption, which is scheduled to enter into force on 1 January 2024, will provide the groups concerned with a new VAT management tool, as the VAT Group regime allows for cash savings linked to the elimination of VAT on internal flows and the consolidation of members’ VAT debit and credit positions where applicable, as well as centralized management of VAT reporting obligations.
The opening up of the VAT group regime also seems to be more in line with EU law and CJEU case law (25 April 2013 – Commission v Sweden; Case C-480/10) according to which the VAT group scheme is not in principle limited to a specific sector of activity.
As a reminder, groups willing to opt for the VAT group scheme must communicate their option to the tax authorities no later than 31 October of the year preceding the implementation of their VAT Group (e.g. 31 October 2024 for a group effective on 1 January 2025).