VAT is imposed on all taxable economic activities of a person who is not an employee. The taxable character of an economic activity does not depend upon its profitability; for example, sales at or below cost are taxable. In order to be taxable, a transaction must, in principle, be between legally distinct persons and consideration must be paid therefore.

Taxable economic activities have been defined to include:

1.      the sale of goods,

2.      the rendering of services,

3.      certain types of “intramural transactions,”

4.      the importation and exportation of goods,

5.      intra European community transactions, and

6.      the purchase of certain types of real property.

A brief explanation of these six categories of taxable economic activity follows.

[a]  Sale of Goods.  

A taxable sale of goods is deemed to occur whenever an individual or corporate entity subject to VAT transfers title to personal property for consideration. Also assimilated to the category of a taxable sale of goods is any lease-sale or installment sale of personal property. Other transactions which are deemed to constitute a taxable sale of goods are the exchange of one or more items of personal property for other items of personal property, the loan of equipment at no cost, if the taxpayer so elects, the contribution of personal property to the capital of a company.

[b]  The Rendering of Services.  

All economic activity which is not deemed to be a sale of goods is classified as the rendering of service. Examples of transactions which are deemed to be the rendering of services are: the transfer for consideration of title to intangible personal property rights, e.g., a Going Concern, a patent or a trademark, by an individual or corporate entity subject to VAT, the lease of real or personal property, the carriage of persons or merchandise, the construction or repair of real property, the sale of food for consumption at the place of sale and the rendering of professional or brokerage services.

[c]  Intramural Transactions.  

Despite the general rule that, in order to be taxable, economic activities must be for consideration and between two legally distinct persons, where a legal entity supplies certain goods to or performs certain services for itself, such goods or services may be subject to VAT. For purposes of calculating the VAT imposed on such intramural transactions, a distinction is made between transactions which are not directly related to the business operations of the taxpayer and transactions which are directly related to such operations. The first type of intramural transaction is normally taxable ; the second type is taxable only where such transaction results in the creation of a fixed asset or, if no fixed asset is created, where the asset created does not give rise to a VAT credit.

[d]  The Importation and Exportation of Goods.

 [i]  Imported Goods.  

As a general rule, any importation of goods into France from a non-EC country gives rise to VAT. VAT is imposed at the time of importation even if there is no sale and consequently no transfer of title to the imported goods. It is the person to whom the goods imported into France are to be delivered  that bears the burden of VAT, which normally is either on the invoiced price or, if no invoice is prepared, on the fair market value of the imported goods, as increased by all charges and expenses ancillary to their importation. The person declaring the goods to the customs authorities is in certain cases jointly and severally liable for any VAT due.

 [ii]  Exported Goods.  

As a consequence of the rule governing the territorial scope of VAT, the exportation of goods from France to a non-EU country is, in theory, subject to VAT. The exportation of goods (as well as the provision of any services directly related thereto) has been, however, specifically exonerated, but not exempted, from VAT liability.

[e]  Intra-Community Transactions.  

As a result of the single market which became effective in the EU on January 1, 1993, transfers of goods between EU Member States are not considered in terms of importations and exportations, but rather in terms of intra-Community acquisitions and intra-Community deliveries.

As a general rule, where goods are sent or transported to France from another EU Member State, the EU seller is deemed to perform an intra-Community delivery which is not subject to VAT in the country of the seller. The French buyer then performs an intra-Community acquisition which is subject to French VAT. The French buyer may be entitled to claim a VAT credit as a result of such VAT paid, under the normal rules.

 [f]  Purchase of Certain Types of Real Property.

Transactions which relate to the sale of certain types of real property are subject to Real Property VAT (TVA immobilière). Specifically, Real Property VAT is imposed on any sale, disposition or other transfer of:

1.      new buildings,

2.      Building Land,

3.      shares of cooperative real estate company.

It is to be noted that Real Property VAT is imposed pursuant to special rules relating to credits and methods of imposition.