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Managing Value Added Tax (VAT) is a major challenge for groups of companies, particularly in terms of centralizing tax obligations, promoting cash flow and limiting fiscal friction in groups that do not fully recover VAT (finance, training, banking, insurance, insurance, medical, gambling,...).
To meet these challenges, the VAT group regime is an innovative solution, allowing the various member companies to centralize VAT obligations and simplify internal transactions. This article provides detailed insight into this regime, examining its legal foundations, eligibility requirements, benefits, and the obligations and challenges it involves.
The VAT group or single taxable person regime is a device allowing several companies to combine into a single tax entity in terms of Value Added Tax. By forming a group, its members can centralize VAT management, thus facilitating exchanges and reducing administrative costs. This system is particularly useful for companies that want to optimize their cash flow and minimize the complications associated with non-deductible VAT within the group.
The VAT group in France is based on the decisions of the European Court of Justice on the application of article 11 of the European Council Directive 2006/112/EC, i.e. the exemption of autonomous groups of persons.
The Court of Justice has stated that the exemption for services provided within autonomous groups of persons does not apply to the financial or insurance sector. Faced with this decision, France has chosen to allow, like many other member states of the European Union, to allow the creation of a single VAT entity for several companies. Indeed, the European directive explains the possibility of “considering as a single taxable person persons who are independent from a legal point of view, but who are closely linked to each other financially, economically and organizationally”.
Thus, in 2021, the VAT group system was born. This regime is integrated into the French Tax Code (FTC), (law 2020-1721 of 29 December 2020, art. 162; FTC art. 256 C new). The legislation specifies the conditions under which companies can form a VAT group and the obligations arising from this. The use of this device finally came into force on January 1, 2022, to be operational on January 1, 2023.
A single taxable person is constituted within the meaning of article 256 A of the FTC; he must meet VAT requirements (declarations, payments, etc.) All the entities that are members of the group therefore have only one unique identification number.
One of the many advantages, and not the least, as we will come back to below, is that internal transactions (sales, purchases, etc.) are automatically no longer subject to VAT.
The establishment of a VAT group in France requires the satisfaction of several conditions, ensuring that only companies meeting strict criteria will benefit from this regime.
To be able to form a VAT group, companies must be linked by capital investments. A company must own a significant portion, usually at least 50%, of the capital of another entity. This financial link between taxable persons is essential to demonstrate economic integration between group members.
Taxed businesses must carry out similar or complementary activities, which demonstrates economic cohesion. For example, companies operating in the same sector of activity or sharing common economic interests may constitute a group. This condition ensures that group members work closely together and that their grouping is economically justified.
The management of member companies must be coordinated in an effective and sustainable manner. For example, integrated management processes or a common strategy. Such an organizational link ensures that group members function well as a coherent economic unit, facilitating the centralization of VAT obligations.
A VAT group must include at least two members, each of whom is subject to VAT. This requirement is crucial to ensure that the group is sufficiently integrated and that it justifies consolidated VAT management. The centralization of VAT obligations for a single member (even if linked to other entities exempt from VAT) would not constitute a real group in the eyes of the legislation.
The VAT group regime is available to French companies and branches of foreign companies established in France under certain conditions. Foreign companies will benefit from this regime provided they meet the eligibility criteria and are integrated into the French economic framework. This openness allows multinational companies to optimize their VAT management for the activities of establishments in France. They must establish a branch in France and demonstrate substantial economic integration within the French framework. They must also submit documents justifying financial, economic and organizational relationships with other members of the group.
Administrative simplification
By forming a VAT group, members centralize VAT returns. This centralization reduces the administrative burden and minimizes the risks of errors in the management of tax obligations. Consolidated declarations make it easier to comply with legal VAT requirements, allowing them to focus more on their core activities.
This is one of the main advantages of creating a VAT group: transactions between members of the single taxable person are not subject to VAT, which eliminates non-deductible VAT on internal exchanges. This neutralization of internal transactions simplifies financial flows and reduces the administrative costs associated with internal billing.
The consolidation of VAT credits at the group level makes it possible to offset VAT debts with the surpluses of other members. This flexibility improves cash management, making it easier to optimize cash flow and reduce financial costs for obligated members.
Despite the advantages offered by the VAT group regime, businesses also have to face some specific obligations and challenges.
Each member of the group is jointly responsible for paying VAT. This responsibility requires rigorous management to avoid financial imbalances within the group.
The establishment of the VAT group requires a detailed analysis of the financial, economic and organizational relationships between companies. This initial complexity can be an obstacle for businesses that do not have a sufficiently integrated structure. It is mandatory to foresee the real advantages and disadvantages before creating a VAT group, integrating it, etc.
Currently, the establishment of the VAT group generates the recognition of turnover not taxable for VAT in respect of internal flows within the Group's perimeter. This recognition may result in some companies being subject to payroll tax as a result of integration into the Group. In this context, it is currently not appropriate to create a VAT Group when all companies are fully recovering VAT.
The exit of a member or the dissolution of the group leads to complex and expensive regularizations. Careful planning for these contingencies is essential to anticipate and avoid negative financial consequences for all members of the group.
To form a VAT group, member companies must follow a structured procedure:
An application must be submitted to the French tax authorities, to the SIE (Service des Impacts des Entreprises), specifying the financial, economic and organizational links between members. Member companies must choose a VAT regime and designate the entity that will represent them. This request must include all the documents justifying the establishment of the group: name of the sole taxable person and of each member, residence of the taxable person, agreement of each member by his legal representative, etc.
The tax authorities examine the request and validate the constitution of the group. Official validation allows the group to start enjoying the benefits of the regime.
The company designated as the group representative is responsible for the declaration and payment of consolidated VAT. Ongoing management must ensure compliance with the group's fiscal obligations, thus optimizing the centralization of declarations.
Establishing a VAT group and linking several members at the fiscal level is a real strategic opportunity. Calling on specialized tax lawyers offers considerable advantages for businesses.
Tax lawyers have extensive expertise in the rules and nuances of the VAT group regime. Their precise knowledge of legal texts and articles and administrative practices ensures total compliance and maximizes the benefits for the companies forming a group. Prior to the creation of the group, to carry out financial simulations in order to optimize the VAT group, to supervise the application file, to create the tools for its daily management or to analyze the entry of a new company into the VAT group: you will have professionals at your side who will quickly respond to your needs, your desires, your strategic visions. Likewise, they will be an advantage in your relationships with the Tax Administration.
VAT lawyers bring an external and objective perspective, identifying opportunities and risks that are often not perceived internally. Their fresh perspective makes it possible to analyze tax structures with a precision that can reveal opportunities for optimization. They have extensive experience in these subjects and have set up some of the most important VAT groups in France.
Thanks to their expertise, our tax lawyers often offer innovative tax optimization solutions. They help identify ways to improve tax management, allowing businesses to make the most of the VAT group regime and optimize their management of non-deductible VAT.
The VAT group regime represents a major opportunity for groups of companies seeking to simplify their VAT management and optimize their cash flow.
By meeting the eligibility requirements and benefiting from the benefits of this regime, businesses can improve their tax management.
Calling on specialized tax lawyers guarantees successful implementation and optimized management, thus ensuring total compliance and effective use of this innovative regime. So, do not hesitate to make an appointment quickly to have real specialists in the VAT Group regime at your side who are eager to help you succeed.
Here you will find a link to our VAT group offer: link.
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