It allowed suppliers not established in France, and their French VAT-registered customers, to avoid application of the reverse charge mechanism. Instead, the French VAT owed by the customer a declared and paid in their name and on its behalf by the foreign supplier through a répondant fiscal.
As this procedure instituted a kind of fiscal representative for non-EU as well as EU companies, the Court of Justice of the EU judged that the répondant fiscal mechanism was not in line with the EU VAT Directive.1
The consequences of this decision, although not unexpected, are now very clear: the French tax authorities have recently confirmed that the procedure is no longer applicable from 1 October 2012.
Any foreign operator that has established a répondant procedure will need to follow a specific process to cancel it. The elimination of the mechanism will deeply impact foreign companies that have been using this procedure up to now, since they could end up with a significant recurring VAT credit in France.
Indeed, once the répondant fiscal is cancelled, foreign companies will then issue invoices to French customers by applying the French domestic reverse charge mechanism. However, the will still be charged with French input VAT by their own (French) suppliers, thus creating a VAT credit position which could become significant.
To avoid an unfavorable cash position, it is advisable to consider implementing specific VAT regimes or to look at potential opportunities to modify the supply chain. Lastly, the French tax authorities have used the introduction of the new regime to publish new regulations on French Intrastat returns. To simplify formalities for foreign companies, the new regulations have modified the rules aimed at determining the person liable for filing the Intrastat return in two distinct cases:
- for sales of goods with installation
- where goods are transferred into
France from an EU Member State by a company not established in France and then sold to a French company (e.g. consignment stock regime). This means that foreign companies that are VAT registered in France solely to file Intrastat returns may no longer need to maintain their French VAT registration.
1. Case C-624/10, European Commission v. République Française, December 15, 2011. Fidal is an independent legal entity that is separate from KPMG International and KPMG member firms.