Clarification from the French tax authorities on VAT liability for advance payments on the supply of goods

When the supply of goods gives rise to the payment of a deposit, VAT becomes chargeable as soon as the seller collects the amount received. The BOFiP (Bulletin Officiel des Finances Publiques) recently commented and clarified these new provisions.

VAT liability rules

The due date determines the period during which the amount of the taxable transaction must be declared. It is also from this date that the customer's right to deduct begins.

It differs according to the nature of the transaction subject to VAT. For supplies of services, the date on which VAT becomes chargeable corresponds to the date of collection. This should not be confused with the date of the chargeable event, which corresponds to the date on which the service is performed. For the supply of goods, the date on which VAT becomes chargeable and the date of the chargeable event coincide, since this is the date on which the goods are physically handed over.

Companies offering services and goods have two options.

  • By opting for the output VAT system, they can retain different due dates for these two types of transaction.
  • By opting for the VAT on debits system, VAT becomes payable on the date of invoicing, whether for the supply of services or goods. To opt for the VAT on debits system, you must submit a written request to the tax department to which the company concerned is subject for VAT purposes. It need not be mentioned on invoices.

What are the changes in case of instalments?

Invoices sent before the generating event of a sale of goods or provision of services are considered as down payments.

Before 2023, VAT on the supply of goods was payable by the seller at the time the service was rendered.

Since January 1, 2023, in the case of advance payments, the tax is payable when the advance payment is cashed, up to the amount cashed. This new possibility, provided for in article 30 of the French Finance Act for 2022, implies that all "relevant elements" of the future delivery must be known when the advance payment is cashed, as specified in a BOFiP update dated December 21, 2022. According to a 2006 ruling by the Court of Justice of the European Union (CJEU), the characteristics of the goods and their price are among these elements, as opposed to the delivery date.

The aim of the reform is to comply with Article 65 of the Directive on the common system of VAT, and to enable businesses to deduct VAT on their purchases earlier when making advance payments. It applies to all contracts in force on January 1, 2023.