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Indirect Tax News N°111 – June 2016

Law on the “Economie Bleue” – Reverse charge of VAT on importation – Simplifications for EU established businesses

From 22 June 2016, it is possible for companies established in the EU for using opt to use the reverse charge for VAT due upon impor-tation. There are no particular criteria to be fulfilled other than simply making the option.

However, the government has recently proposed, with a new bill (“Sapin II”), the re-introduction of a pre-authorisation system for EU businesses other than those which have Authorized Economic Operator status. This bill is currently being debated in the French Par-liament and could be released before the end of July.

Companies established in the EU who wish to opt for this regime must do so as soon as possible in order to benefit from the simplified procedure.

Rey Grundstücksgemeinschaft (CJEU, 9 June 2016, case C-332/14) – Partial exemption calculation

This case concerned a mixed-use building, i.e. made up of common areas, areas used for commercial leases subject to VAT and other areas used for residential leasing (exempt from VAT).

The Court held that in this case, the principle of allocation of inputs must be first applied where it is easy to carry out in practice, which would appear to be the case for costs linked to the use or maintenance of the building when the building was being used. However, if the allocation is difficult to carry out, which would appear to be the case in respect of the costs of constructing the building, the Court acknowledges that a departure from this principle can be made. Second, concerning expenses considered as not possible to allocate, and where the Member State has made use of certain options provided for in the VAT Directive, it is possible to depart from the turno-ver-based method that is provided for, in principle, by the VAT Directive and to apply another method (such as a floor-space based method) in order to calculate the amount of deductible input VAT, subject to the condition that, in particular, the method used guarantees a more precise determination of the proportion of deductible input VAT than the turnover-based method.

For information, the French tax code provides for a flat-rate turnover based method to be applied to all expenses and, concern-ing mixed-use buildings, the French tax authorities allow for a derogation from the application of a turnover-based method in certain circumstances.

Lajvér (CJEU, 2 June 2016, case C-263/15) – Concept of supply of services for consideration

Several Hungarian non-profit companies were created in order to construct, and later operate, agricultural engineering works on land including public roads and private sections). The works were financed by public funds. It was provided for that the companies would then invoice the property owners a small operating fee in relation to the agricultural works for a period of eight years. It is noted that no precise indication was given by the Court as to the amount of the operating fee or of the financed works. The companies deducted all of the VAT incurred on the construction costs. The question was whether this activity constituted and economic activity, and if the operat-ing fee could be held to be consideration for a supply of services. The Court responded in the affirmative in terms of principles, recom-mending however to be sure that the operating fee was indeed consideration for the provision of an operation service and that the transaction did not constitute an artificial arrangement carried out with the sole aim of obtaining a tax advantage.

This decision must be reconciled with the recent Gemeente Borsele case (C-520/14) concerning the performance by a locality of the transport of schoolchildren.

Ginger (Conseil d’Etat, 20 May 2016, n°371940) – Receipt of dividends by a holding company

The company Ginger held shares in its subsidiaries. The company took a management role with respect of all of its subsidiaries, providing them, to this effect, with services subject to VAT. Ginger also received dividends. The right to deduct VAT on costs incurred by the company had been, in part, challenged by the French tax authorities.

With the case before them for a second time in the course of the litigation, the Conseil d’Etat held that the Administrative Court of Appeal had made an error of law in holding that Ginger could not deduct the full amount of input VAT incurred solely on the basis that it received from its subsidiaries dividends which were outside the scope of VAT.

The Conseil d’Etat is adopting the position set out by the CJEU (Larentia + Minerva, Marenave Schiffahrts, joined cases C-108/14, C-109/14), thus completely overturning its previous case law. Thus, the receipt of dividends by a holding company which takes a management role in all of its subsidiaries is not liable to suffer a reduction of its right to VAT deduction.


Michel Guichard Odile Courjon Bertrand Jeannin William Stemmer
Email : mguichard@avocats.deloitte.fr Email : ocourjon@avocats.deloitte.fr Email : bjeannin@avocats.deloitte.fr Email : wstemmer@avocats.deloitte.fr
Nicolas Kazandjian Vanessa Irigoyen Anne Gerometta Marie Manuelli
Email : nkazandjian@avocats.deloitte.fr Email : virigoyen@avocats.deloitte.fr Email : agerometta@avocats.deloitte.fr Email : mmanuelli@avocats.deloitte.fr
Delphine Nicault Mélanie Michenot    
Email : dnicault@avocats.deloitte.fr Email : mmichenot@avocats.deloitte.fr    


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