13th november 2023
In the Social Security Finance Bill adopted on 4 November 2023, the French Government has approved an amendment exempting certain members of a single taxable entity ("VAT Group") from payroll tax.
WHICH IS THE TARGET OF GOVERNMENT?
Groups (industrial or in the distribution sector) whose turnover is wholly or mainly subject to VAT are, in practice, excluded from the single taxable entity scheme, since opting for this legal regime would entail a significant cost in terms of payroll tax, due to the increase in the proportion of turnover not subject to VAT.
With the aim of making the single taxable entity scheme accessible to a greater number of companies, the adopted amendment neutralises the payroll tax surplus in the specific case of the formation of a single taxable entity by companies which, taken separately, would not be subject to this tax and whose VAT-taxable income, at group level, represented more than 90% of their turnover in the year preceding that in which the remunerations were paid.
Clearly, the VAT Group scheme is opening to new sectors!
THE DIRECT BENEFITS OF THE VAT GROUP: CASH SAVINGS AND ADMINISTRATIVE SIMPLIFICATION
The introduction of the VAT Group scheme allows for the consolidation of VAT payment and considerably reduces the number of transactions which must be declared: Indeed, internal transactions carried out between members of the group are no longer subject to VAT.
However, the creation of such a single taxable entity has potential negative consequences in terms of payroll tax since, for each of its members, it increases the proportion of turnover not subject to VAT and, consequently, the amount due in terms of payroll tax. It is this negative effect that the amendment proposes to correct to enable companies whose turnover is wholly or mainly subject to VAT to benefit from the advantages of the VAT Group.
NEXT STEPS
If the provision is also adopted by the Senate and then ratified by the Constitutional Council, the groups of companies concerned could therefore benefit from the VAT Group scheme as of 1 January 2025, provided they exercise the option before 31 October 2024.
Our teams are available to help you define the operational and WCR gains associated with the creation of a VAT Group, considering the costs associated with business, organisational and IT constraints. When setting up a VAT Group, it is important not to underestimate these issues, to ensure a clear and measured return on investment.
