VAT is a non-cumulative tax and is imposed only on the price of the services rendered or the goods sold. In order to ensure that only said added value is subject to VAT, a VAT credit system has been adopted which permits a taxpayer to claim as a credit against his VAT liability the amount of VAT paid on the goods sold or the services rendered to him. A VAT credit may be claimed by a taxpayer not only as a result of his purchases of goods which he transforms and resells to his clients, but, in addition, as a result of his purchases of fixed assets which he uses in connection with his business operations.
[a] Determination of VAT Credit.
To determine the amount of the VAT credit, the taxpayer must compute a special coefficient for all goods and services that he purchases, imports or supplies to himself. The VAT credit is equal to the VAT initially paid multiplied by such coefficient de deduction.
The coefficient of deductionis equal to a) the coefficient d’assujettissement multiplied by b) the coefficient de taxation multiplied by c) the coefficient d’admission.
a) Coefficient d’assujettissement. The coefficient d’assujettissement of goods or services is equal to the proportion they are used to conduct taxable economic activities. If the goods or services are used solely to conduct taxable activities, the coefficient d’assujettissement is equal to 1. If they are not used to conduct taxable activities, the coefficient d’assujettissement is equal to 0.
The taxpayer may apply a single, annual coefficient d’assujettissement for all of its goods and services that are used for both taxable and non-taxable activities.
b) Coefficient de taxation. The coefficient de taxation of goods or services is equal to 1 where the taxable activities for which they are used give rise to a VAT credit. It is equal to 0 if the taxable activities do not give rise to a VAT credit. Where they are used for taxable activities which both give rise and do not give rise to a VAT credit, the coefficient de taxation is equal to the ratio of i) the total annual turnover of the activities giving rise to VAT credit, to ii) the total annual turnover of taxable activities. The taxpayer may apply a single, annual coefficient de taxation for all of its goods and services computed according to such latter method.
c) Coefficient d’admission. The coefficient d’admission is equal to 1 except in certain limited cases where provision has been made excluding or restricting the right to claim a VAT credit. In the event the goods or services are the subject of a measure excluding the VAT credit, the coefficient d’admission is equal to 0; examples are where the purchase of the goods or services is not at arm’s length, where the goods or services are used primarily (more than 90%) for purposes outside the taxpayer’s business, or where they are used for certain transportation services. If the right to the VAT credit is restricted, the coefficient d’admission is less than 1; these cases involve purchases of petroleum products for specific types of vehicles.
Each of these coefficients is determined in a preliminary manner at the time of acquisition, and a final determination is made by April 25 of the following year. Depending on whether the difference between the preliminary and final coefficients is positive or negative, the taxpayer must either claim an additional VAT credit or pay additional VAT.
After having determined that a VAT credit may be claimed, it is necessary to determine when it vests and when it may be claimed. A VAT credit vests as soon as the person who sold the goods or rendered the services to the taxpayer is liable for the VAT relating to the taxable transaction.
A taxpayer may claim a VAT credit corresponding to VAT paid in connection with his acquisition of goods or services in the month that the VAT credit vested; such credit may be used to offset the taxpayer’s VAT liability on his taxable economic activities during said month.
[b] VAT Credit Carry-Forward or Refund.
Where a taxpayer has more VAT credits than VAT tax liability, he may carry such excess credits forward and offset them against the VAT due for the succeeding month. If the amount of excess VAT credit at the end of a calendar quarter is equal to or greater than 760 euros, such amount will be refunded by the tax authorities quarterly; if the amount of such excess credit is not sufficient to give rise to a quarterly refund, but is in excess of 150 euros, the tax authorities will refund such excess annually; if the amount of such excess credit is less than 150 euros, it will not be refunded.
Requests for refunds must be made in compliance with strict procedural rules which, when the refund is not insubstantial, are strictly enforced by the tax administration. The principal requirements of such rules are:
1. the request for refund must be signed by either the highest officer of the taxpayer or a duly authorized employee by virtue of a power-of-attorney that has been filed with the registration tax authorities not later than the day before the request for refund is filed,
2. the request for refund as well as the VAT returns for the period showing a VAT credit must be filed on the exact day prescribed by law for its filing,
3. the taxpayer must be in complete compliance with all of the rules and regulations governing the VAT,
4. the VAT returns filed by the taxpayer for the three months preceding the quarterly request for a refund must each show a VAT credit, and
5. the taxpayer must be able to produce, upon due demand, all appropriate documentation relating to the VAT refund requested.
In principle, a VAT refund is paid by the tax authorities in no more than four months; during such waiting period, no interest is paid on the amount of such refund. Exporters may obtain a monthly refund of VAT in certain circumstances.
A corporate entity or an individual that is not established in France (hereinafter referred to as a “Non-Domiciliary”) who does not engage in economic activities subject to French VAT may file a request for a refund of French VAT invoiced to him only if he uses the goods and services to which the VAT credit corresponds in connection with:
1. economic transactions which are taxable in his country of residence and which would permit a French VAT taxpayer to claim a VAT credit in connection therewith had they been carried out in France,
2. the rendering of international transportation services, or
3. the rendering of services relating to intangible personal property (CGI, art. 271; CGI, ann. II, arts. 242-0 M, 242-0 N, 242-0 O).
Where a Non-Domiciliary that is established in a Member State of the EU files a request for a refund of French VAT invoiced to him, he must attach to such request a certificate attesting that he is a VAT taxpayer in his country of residence. Wwhere the Non-Domiciliary is not established in a Member State of the EU, he must appoint a tax representative who agrees to be liable for any reimbursement to the tax administration of VAT refunded to the taxpayer. In both instances, such request for refund must be filed no later than six months after the calendar year during which the VAT credit vested.
[c] Subsequent Adjustment of VAT Credit.
While in principle the VAT credit claimed by a taxpayer is final, it may nevertheless be adjusted in specific limited cases provided by law.
For fixed assets, there are two types of regularization: the annual regularization and the global regularization. The annual regularization takes into account changes in the use of the goods since their acquisition, whereas the global regularization accounts for the occurrence of certain events following acquisition.
For assets other than fixed assets, the taxpayer must repay the VAT credit previously claimed where the goods disappear, or if the goods which were the subject of a VAT credit are used for a transaction not subject to VAT.