What is the VAT rate applicable to the sale of sushi in France? - Contrary position between the Tax authority and the French highest tax court

With a turnover of 728 million euros for sushi restaurants, we quickly understand why the issue of VAT is a strategic issue both for market operators and for end consumers.

Applying the 10% VAT rate instead of the 5.5% VAT rate can have two impacts:

• or increase the selling price to the consumer so that the seller maintains an unchanged margin level. It is then the consumer who is subject to the VAT rate differential.

• or reduce the seller's margin in order to keep the cost for the consumer unchanged. It is then the seller who is subject to the VAT rate differential.

In a Sushi Saint-Cloud decision, dated 18 June 2023 (link), the Council of State undermined the VAT rate rules applicable to the sale of sushi by specifying that” Fresh sushi, regardless of its packaging or place of purchase, should be regarded as products prepared for immediate consumption ”.

Before looking at this case, let's go back to the rules that govern VAT rates applicable to food. These are specified by articles 278-0 bis and 279 of the French Tax Code as well as by administrative doctrine (BOI-TVA-LIQ-30-10-10-10-20240207).

In a schematic manner, it is possible to present the elements in the following way:

• Rule of principle: food products intended for human consumption are subject to the VAT rate of 5.5%. Attention: this is a rule of principle that is subject to numerous exceptions. Alcohol, for example, is in all cases subject to the 20% VAT rate, just like caviar or confectionery.

• Exemption applicable to catering activities: catering activities are subject in principle to the VAT rate of 10% except when it comes to alcohol where the VAT rate of 20% applies.

• Exemption applicable to take-away sales: certain products sold to take away may benefit from the reduced VAT rate of 5.5% as long as they are not prepared for immediate consumption. This is the case, for example, with ice cream sold packaged, seafood platters, bread and pastries.

Here you understand the fundamental challenge that arises for some actors in the food sector.

This challenge lies in the following question: are the products that are marketed intended for immediate consumption or for delayed consumption.

And to do this, it is necessary to examine the criteria that make it possible to consider that a product is intended for consumption on site or to take away.

What are the criteria to be used to determine the VAT rate?

For a product to be intended for delayed consumption, the tax authorities specify that it must be sold in packaging that allows its preservation (in particular, canned food or vacuum packaging). This is in particular the case of non-alcoholic beverages served in containers that allow them to be preserved, such as bottles, barrels, bricks or cans (BOI-TVA-LIQ-30-10-10-10-20240207 paragraph 330).

This is also the case for sales of cooked meals, in particular by caterers, provided that they can be stored later and not consumed on site.

The tax authority points out that the characteristics of the place can be taken into account to characterize the existence of immediate consumption. This is the case when it appears from these characteristics that the goods sold are intended to be consumed on site.

What is the VAT rate for sushi?

The tax authorities had guaranteed the application of the reduced VAT rate of 5.5% for sushi sold in supermarkets in a rescript dated June 29, 2022.

The administration thus specifies in its doctrine that the VAT rate of 5.5% is subject to the VAT rate of 5.5%:

“the sale to end customers by a large surface of fresh sushi and makis presented for sale in refrigerated departments, in accordance with health regulations and packaged in trays equipped with a removable lid or any other container allowing their transport, to be taken away packaged in a package allowing their transport and delayed consumption, without material possibility of consumption on site”.

Several criteria are used here to justify the application of the reduced VAT rate:

• The fact that sushi is sold in a supermarket;

• The fact that sushi is sold in a tray allowing its transport and delayed consumption (an airtight seal is however not required);

• The fact that consumers did not have material opportunities for consumption on site.

Based on this BoFIP, the sale of sushi in supermarkets is therefore subject to the reduced VAT rate of 5.5% without the risk of being called into question by the tax authorities.

However, practice has shown that a good number of restaurants or home delivery services, invoking the terms of this BOFIP, applied the reduced VAT rate of 5.5% for the take-away sale of sushi when they considered that these products were not consumed on site and that the consumer was put in a position to consume them on a deferred basis.

This situation has led to numerous tax audits and sometimes to different positions of the departments in charge of controls:

• Some, considering that sushi sold by restaurants must necessarily be subject to the 10% VAT rate since BOFIP only applied to supermarkets,

• others, considering on the contrary that take-away sushi could benefit from the reduced rate of 5.5% even though it was sold by restaurants, as long as it could be intended for delayed consumption and should not be consumed on site.

What lessons can we draw from the Council of State's decision?

Before drawing lessons from the Council of State's decision, it should be noted that the decision was issued prior to the publication of BOFIP, i.e. at the time of the events, the administration did not publicly indicate that sushi sold in supermarkets benefited from the reduced VAT rate of 5.5%.

Before the Council of State ruled, the Versailles Administrative Court of Appeal (link) had for its part considered on May 23, 2023 that sushi should be watched by their nature, such as products prepared for immediate consumption, even though take-away products could be stored in the refrigerator without health risks for customers for two or three days.

Moreover, the judges considered that the trays, which were not airtight, used to package these products were used exclusively to facilitate their transport and not to significantly improve their preservation.

As a result, sushi was intended for immediate consumption and the VAT rate had to be 10%.

The decision of the Council of State recalls that food products prepared for immediate consumption mean products whose nature, packaging or presentation induce their consumption as soon as they are purchased.

However, the Council of State indicates that for fresh sushi, the latter, regardless of their packaging or place of purchase, should be regarded as products prepared for immediate consumption.

Therefore, these products must be subject to the 10% VAT rate.

Important point: the Council of State considers it superabundant the fact that sushi was presented in non-airtight containers that did not improve the shelf life of sushi.

In other words, the Council of State takes a purely objective approach to sushi by considering that these products are by nature intended for immediate consumption and that neither their mode of consumption nor their place of purchase make it possible to apply a reduced VAT rate of 5.5%.

Such a decision raises several questions:

• First of all, she questions the position that the tax administration will adopt with regard to its BoFiP allowing supermarkets to benefit from the reduced VAT rate since the Council of State considers that the place of sale does not make it possible to justify the application of the reduced VAT rate of 5.5%. Some arguments could be used to maintain such a position despite the position of the Council of State.

• Second, this decision raises questions about packaging. Indeed, administrative doctrine provides that products sold in packaging that allows them to be preserved can benefit from the reduced VAT rate of 5.5%. While the decision of the Council of State relates only to sushi, it should be ensured that this position is not read extensively at the risk of seeing other products comparable to sushi benefit from the same fate despite being packaged in airtight packages.

In any event, supermarkets retain the possibility of invoking the doctrine of the tax administration, which remains enforceable as of its publication.

As for restaurants selling sushi, they must now take stock of the Council of State's decision to ensure that they correctly apply the 10% VAT rate on the sale of sushi, even if the sushi is sold to take away.