Identifying the circumstances in which registration for VAT purposes in France could become mandatory for a foreign company involved in trading of wines, beers and spirits within French excise warehouses.
An increasing number of foreign wholesalers purchase and resell alcoholic beverages under French excise duty suspension scheme.
The inventories traded are usually stored in excise warehouses belonging to specialized logistic companies such as IEFW (Import-Export Fonderies de Wimille), OTN (Opale Total Négoce), DBS (Dunkerque Bonded Stores), RM TRADING and COTRAMA.
It has been noticed that some EU companies engaged in cross-border trading of alcohol are not aware of their potential VAT liability in France. The reason behind this unawareness is that in their home countries, buying or selling alcohol products within “tax warehouses” does not necessarily lead to a tax liability because both excise duty and VAT are suspended.
In the UK, for instance, under the provisions of section 18 of VAT Act 1994, placing or supplying excise goods in a tax warehouse is usually done under duty and VAT suspension regimes.
Hence, UK businesses are accustomed to have no fiscal liability when trading alcoholic products whilst within tax warehouses located in their country.
This simplification measure is not applicable in France and it is more than ever important for beverage companies trading internationally to grasp the VAT implications deriving from their under bond sales across the Channel.
France makes a difference between “Tax warehouse” and “Excise warehouse”
With respect to trading of alcoholic products, the French tax law makes a clear difference between “tax warehouse” (see art. 277 A of the French General Tax Code) which the goal is to suspend VAT and “Excise warehouse” (refer to art. 302 G of the same code) which has the unique purpose to suspend excise duties. Each warehouse has its own role and cannot play the role of the other.
Indeed, article 155 of the Council Directive n°2006/112/EC gives to the EU Member States the possibility of not charging VAT on goods or services supplied whilst within warehousing regimes:
“(…) Member States may, after consulting the VAT Committee, take special measures designed to exempt all or some of the transactions referred to in this Section, provided that those measures are not aimed at final use or consumption and that the amount of VAT due on cessation of the arrangements or situations referred to in this Section corresponds to the amount of tax which would have been due had each of those transactions been taxed within their territory.”
France has chosen to not apply the option of VAT exemption on goods supplied within “Excise warehouses”. The French tax doctrine clearly states that the purpose of an “Excise warehouse” for alcoholic products is to suspend exclusively excise duty and not VAT.
When there is a will to suspend both Excise duty and VAT, the warehouse should have two different licenses (one for excise duty suspension and the other for VAT suspension). The second license related to the exemption of VAT is issued by the tax authorities when the warehousing regime fulfils specific conditions listed in article 277 A of the French General Tax Code (FGTC).
Alcohol wholesalers: should your company be registered for VAT in France?
The reality is that most of beverage logistics companies operating “Excise warehouses” in France do not necessarily hold a license for VAT exemption. Their warehouses are generally restricted for the storage of alcoholic beverages under a duty suspension scheme.
As a result, foreign companies selling alcoholic products whilst within French excise warehouses should be registered for VAT in France and add 20% French VAT on their sale invoices.
In some circumstances, French VAT registration can be avoided. It is the case for example when the customers in France provide their French VAT numbers to the foreign dealer. In this specific case, the sales invoices should be zero-rated (i.e. application of domestic VAT reverse-charge mechanism – art. 283-1 of FGTC), no matter if the customer providing a French VAT ID is a French company or not.
What about the “3 month rule” simplification?
In France, the 3 month consignment stock rule is a simplification regime that allows a foreign business to move its own goods into France without being required to be registered for French VAT and undertake a taxable intracommunity acquisition immediately upon arrival of the goods.
The conditions underlying this simplification regime are stated in the French Tax Authorities’ (FTA) guidelines BOI-TVA-CHAMP-10-10-40-20-20120912 §210 :
- A company established outside France transfers its own goods in France;
- The goods move to France from another EU Member State;
- The transfer is followed by a French domestic supply within three months maximum;
- The direct customer (a French or foreign company) is registered for VAT purposes in France.
It should be clearly understood that the 3 month rule simplification is not applicable when the direct customer in France does not have a valid French VAT number at the date of the sale transaction.
In the latter situation, a VAT registration in France is required for the foreign supplier. It will not only need to account for an intra-EU acquisition in France, but will be also required to collect French VAT at the standard rate (i.e. 20 per cent) on each sale carried out on the French territory (refer to art. 258-I of the French General Tax Code).
In the case of successive sales in France, the possibility to apply the simplification regime is opened only to the first company in the supply chain, i.e. the entity that introduces goods into France from another EU country.
The tax liability of each intermediary company in the chain will depend on the French VAT status of each subsequent customer. If the customer has a VAT number in France, another simplification rule deriving from the French domestic reverse-charge mechanism will be applicable. Otherwise, the foreign intermediary will need to be registered for French VAT and add 20% VAT on its sale invoices.
Tax penalties when failing to comply with French VAT rules
Foreign companies should understand that when their VAT liability in France is clearly established, registration for VAT purposes becomes mandatory. Default of compliance can lead to tax raids performed by the French tax authorities.
Since January 2015, the right of communication of the French tax office has been strengthened in order to fight tax fraud efficiently. For example, listings of overseas companies can be obtained from their French commercial partners such as logistic companies or warehouse keepers.
The information obtained are compared with data available in tax registers in order to detect non-compliant businesses and launch tax investigations. The French tax administration usually requests assistance from its counterparts in other EU countries in order to lay hands on suspected companies and where necessary, proceed to tax reassessments.
Another specificity of the French law is that a tax investigation can cover in some circumstances a period of 10 years backward. For example, an investigation starting in 2019 may cover not only the tax year 2019, but also the previous tax years up to 2010.
A typical VAT reassessment will generally lead to payment of the total amount of VAT due but not paid during the period of reassessment (3 to 10 years backward).
On this basic amount will be added all the following tax penalties:
- Penalties for late filing of VAT returns: range from 10% to 80% of the VAT amount due.
- Default interest for late payment of VAT due: 0.4% per month of delay (which represents 14.40% for a period of 3 years and 48% for a period of 10 years).
Even if in some cases transactions with the tax office to reduce penalties are possible, the remaining part to be paid by the taxpayer is still unbearable.
Experience is the only prophecy of wise men.
Alphonse de Lamartine
The content published here above is based on information timely as of 1 April 2019, unless otherwise indicated. Amendments to the tax laws in the EU country covered here could have been passed recently. Therefore, readers should contact Corintax Consulting for further insights.