VAT: transcription in the Code des taxes et du chiffre d'affaires of the provisions of the French Finance Law for 2023

Sovereign Order no. 9.821 of 9 March 2023 on value added tax (JDM no. 8634 of 17 March 2023) transcribes into the Monegasque Code (CTCA) the French tax measures resulting from the Finance Law no. 2022-1726 of 30 December 2022 for 2023 (LF 2023) (JORF no. 0303 of 31 December 2022)[1]

[1] Pursuant to Article 15 of the Franco-Monegasque Tax Convention of 18 May 1963 (Sovereign Enforcement Order no. 3.037 of 19 August 1963), turnover taxes are applied in the Principality on the same basis and at the same rates as in France.

SUMMARY

• Harmonisation of the tax regime for self-supply with regard to the application of reduced VAT rates:

Introduction of a rate of 10% and 5.5% on LASMs for improvement, conversion, fitting-out and maintenance work, and energy improvement work on residential premises completed more than two years ago, carried out by a professional lessor (previously 20%) (Article 51-0 B CTCA ; Article 278-0 B French CGI).

• No taxable transaction in case of transfer of a universality of property and no longer "VAT exemption":

Change of wording - Compliance with EU law regarding VAT adjustments in the case of transactions exempt from VAT or taking place on the occasion of a transfer of assets and liabilities (transmission universelle de patrimoine -"TUP") carried out for no consideration (Article 5 bis CTCA, Article 257 bis CGI) ;

• Introduction of a VAT exemption for disaster victims:

Transposition of the EU VAT exemption scheme for the import of goods distributed or made available free of charge to disaster victims (Articles 23, 42, 63, 81 CTCA ; Articles 261, 271, 284, 281 CGI) ;

• Consistency in the application of reduced VAT rates in the agri-food sector and in agricultural production:

The VAT rate applicable to agricultural products and animal feed is aligned with the rate applied to human food, i.e. 5.5%, compared to 10% previously (Article 52-0 CTCA, Article 278-0 bis CGI) ;

• Electronic invoicing between VAT taxpayers:

The qualified electronic seal, a new technical solution for issuing or receiving electronic invoices, with a retention period of 6 years on computer media (Articles 71, 80 CTCA ; Article 289 CGI, Article L. 102 B Livre des procédures fiscales)

• Services relating to charging stations for electric vehicles:

Conditions for the application of the 5.5% VAT rate for the installation and maintenance of charging infrastructure (Article 52-0 CTCA ; Article 278-0 bis CGI) ;

• Energy renovation services in residential premises completed at least two years ago:

Redefinition of the scope of the reduced rate of 5.5%. (Article 52-0 bis CTCA ; Article 278-0 bis CGI)

• Beneficiaries of the basic exemption and importation not subject to VAT:

Exemptions from filing the client summary statement and identification (Articles 50 A, 68 ter CTCA ; Articles 256 C,, 277 A, 286 ter A CGI)

• Non-allocation or invalidation of the individual identification number:

Expansion of the control system (Article 68 bis CTCA ; Article L. 10 BA Livre des procédures fiscales)

* * *

IN DETAIL

Harmonisation of the tax regime for self-supply (LASM Livraisons à soi-même) with regard to the application of reduced VAT rates:

Introduction of a rate of 10% and 5.5% on LASMs of improvement, conversion, fitting out and maintenance work, and of energy quality improvement work on residential premises completed more than two years ago, carried out by a professional lessor (rate of 20% previously) (Article 51-0 B CTCA; Article 278-0 B CGI).

Pursuant to Article 56 bis CTCA, VAT is levied at the reduced rate of 10% on improvement, conversion, fitting out and maintenance work on residential premises completed more than two years ago.

Similarly, in application of the provisions of Article 52-0 bis, VAT is levied at a rate of 5.5% on work to improve the energy quality of such housing.

In parallel, when the work is carried out by a professional lessor, Article 5 II. 1. 2° CTCA provides that if this work contributes to the enhancement or prolongation of the life of the building, it must give rise to the taxation of a LASM if the building that is the subject of the work is used for operations that are not subject to VAT (which is the case when the building is used for a residential rental activity, this type of rental being exempt from VAT).

The amendment at the origin of this reform gives the example that previously, when a lessor had energy-saving work carried out in residential premises more than 2 years old and that this work was invoiced at the rate of 5.5%, he then had to carry out a LASM at 20% as soon as the work was capitalised.

This previous arrangement made no sense in that it resulted in VAT being applied at 20% to the cost price of work that had initially been charged at 10% or 5.5%.

These reduced rates were previously applicable only to the work itself, and not to the LASMs relating to that work.
Hence the introduction of a rate of 10% and 5.5% on LASMs of works that are eligible for the 10% and 5.5% rates.

No taxable transaction in case of transfer of universality of assets, no longer "VAT exemption":

Change of wording - Compliance with EU law regarding VAT adjustments in the case of transactions that are exempt from VAT or that take place on the occasion of a universal transfer of assets (TUP transmission universelle de patrimoine)[1] carried out free of charge (Article 5 bis CTCA, Article 257 bis CGI).

The former reference to "exemption" from VAT is replaced by the reference that no supply of goods or services "shall be deemed to take place" in the case of a transfer for valuable consideration, free of charge or in the form of a contribution to a company of a total or partial universe of assets carried out between VAT payers.

This change in terminology is in line with the VAT Directive which uses the words "has not occurred" (Articles 19 and 29)[2].

The amendment at the origin of this change underlines that the Council of State highlighted the imperfect transposition of these provisions into French law, ruling that the VAT "exemption" under Article 257a CGI (Article 5a CTCA) could only benefit a transaction subject to VAT. In this case, he had deduced that the exemption could not benefit the sale of a building completed more than 5 years ago which is not subject to VAT. (CE, decision of 31 May 2022, n° 451379, SA Anciens établissements Georges Schiever et fils)[3].

The former wording thus suggested that transactions that were exempt from VAT or that took place in the context of a universal transfer of assets (TUP) carried out free of charge could not benefit from the derogation allowing the transferor not to proceed with the regularisation of the VAT that had encumbered the acquisition expenses.

The new wording also takes into account the position of the Court of Justice of the European Union (CJEU) according to which it is not possible to apply the scheme in favour of TUPs to only certain transfers, except in specific situations aimed at combating fraud.

This change in terminology allows the transferor to benefit from the derogation, in particular in the case of supplies of real estate completed more than five years ago, which are exempt from VAT.

The beneficiary of the transfer, who continues to use the property transferred to him/her, takes over the obligations of the transferor for the purposes of VAT regularisation for the years remaining in their regularisation period.

[1] A TUP allows for dissolution without liquidation, the company's assets and debts being transferred to a new entity. See Article 1703-I of the Civil Code (created by law no. 1.331 of 8 January 2007) which provides that "In the event of dissolution, this shall entail the universal transfer of the company's assets to the sole shareholder, without there being any need for liquidation. Where the sole member is a natural person, the transfer of all the company's assets and liabilities shall take place only in the case of solvent companies.

[2] Council Directive 2006/112/EC of 28 November 2006 on the common system of VAT. Article 19: "Member States may consider that, on the occasion of the transfer, whether for valuable consideration or free of charge or in the form of a contribution to a company, of a totality of assets or part thereof, no supply of goods has taken place and that the recipient continues to be the transferor. Article 29: "Article 19 shall apply under the same conditions to the supply of services.

[3] The decision of the Council of State (no. 451379) concerned the sale of a building completed more than 5 years ago which is not subject to VAT. The Council of State refused the benefit of the exemption and confirmed the obligation for the seller to pay the VAT adjustments on the grounds that this regime did not apply to transactions outside the scope of VAT or exempt from VAT.

Introduction of a VAT exemption for disaster victims:

Transposition of the EU VAT exemption scheme for the importation of goods distributed or made available free of charge to disaster victims (Articles 23, 42, 63, 81 CTCA; Articles 261, 271, 284, 281 CGI).

Article 101a of the VAT Directive allows EU Member States to exempt from VAT the intra-Community acquisition and supply of goods distributed or made available free of charge to disaster victims, by decision of the European Commission.

The amendment behind this transposition specifies that such a decision to exempt the import of such goods from VAT was for example taken by the Commission for the benefit of many Member States in the context of the COVID-19 pandemic (Decision No. 2020/491 of 3 April 2020 on the exemption from import duties and VAT on imports granted for goods needed to combat the effects of the COVID-19 pandemic during the year 2020) and, more recently, in the context of the war in Ukraine (Decision No 2022/1108 of 1 July 2022 on granting relief from import duties and exemption from import VAT for goods intended for distribution to persons fleeing the war in Ukraine and persons in need in that country or to be made available to them free of charge).

In the event of a disaster affecting the territory of Monaco or an EU Member State, a ministerial order determines the obligations to identify and monitor the operations to which the benefit of the exemption is subject and, within the limits of the European Commission's authorisation, specifies the goods and persons concerned by this exemption.

Consistency in the application of reduced VAT rates in the agri-food and agricultural production sector:

The VAT rate applicable to agricultural and animal feed products is aligned with the rate applied to human food, i.e. 5.5% as opposed to 10% previously (Article 52-0 CTCA, Article 278-0 bis CGI);

The 5.5% rate will thus apply from 1 January 2023 to :

• products intended for consumption by animals that produce food for human consumption;
• products of agricultural, fishing, fish farming or poultry farming origin, when they are intended for use in agricultural production.

The amendment behind this single rate of 5.5% for agricultural and food products, both animal and human, states that this measure is intended to remedy the cash flow problems that agricultural producers may encounter as a result of the differences in VAT rates between purchases of live animals (taxed at 10%) and sales of dead animals for human consumption (taxed at 5.5%).

Electronic invoicing between VAT taxable persons:

The qualified electronic stamp, a new technical solution for issuing or receiving electronic invoices, 6-year retention period on computer media (Articles 71, 80 CTCA; Article 289 CGI, Article L. 102 B Livre des Procédures Fiscales).

The new provisions relating to the security of electronic invoices, which allow for the use of a qualified electronic stamp within the meaning of Regulation (EU) No. 910/2014 eIDAS[1], are part of the major reform in France that will require all companies from 1 July 2024 to exchange their invoices electronically (e- invoicing) and to transmit to the French tax authorities all the information they need to process invoices. invoicing) and to transmit to the administration the tax data of their transactions (e-reporting)[2] falling within the scope of VAT as well as those relating to the collection when it triggers the VAT liability. [3]

This process is in addition to the other technical solutions already provided to guarantee the authenticity of the origin, the integrity of the content and the legibility of electronic invoices, namely the electronic signature, the reliable audit trail and the electronic data interchange (Article 71, 5° VI CTCA)[4].

Books, registers, documents or vouchers, including invoices (on which the tax authorities' rights of communication and control may be exercised), which are drawn up or received in electronic form, must be kept in electronic form for a period of 6 years from the date of the last transaction mentioned in the books or registers or from the date on which the documents or vouchers were drawn up.

The conditions for issuing, stamping (as well as the conditions applicable to other technical solutions) and storing these invoices must be specified by sovereign order.

Related text: Ministerial Order n. 67-319 of 28/12/1967 on invoices relating to transactions and issued by taxable persons for value added tax

[1] Regulation (EU) No 910/2014 of the European Parliament and of the Council of 23 July 2014 on electronic identification and trust services for electronic transactions in the internal market and repealing Directive 1999/93/EC.

[2] The e-reporting obligation consists of the transmission to the tax authorities of certain information such as the amount of the transaction, the amount of VAT invoiced relating to commercial transactions not concerned by electronic invoicing such as "Business to Consumer" (B2C) transactions, which makes it possible to reconstitute the overall economic activity of the company.

[3] From 1 July 2024, all companies will be obliged to accept invoices in electronic form. The obligation to issue electronic invoices and to transmit transaction and payment data will be imposed on the largest companies from that date, and for other companies, depending on their size, gradually until 1 January 2026.

The main objectives of the French reform are to combat VAT fraud, simplify business life and reduce the cost of processing invoices.

[4] Directive 2010/45/EU gives three examples of procedures or technologies that guarantee the authenticity of the origin, integrity of the content and legibility of electronic invoices. These are electronic signature, reliable audit trail and electronic data interchange. The Directive does not prohibit the use of other technologies or procedures as long as they comply with the above conditions.

Services relating to charging stations for electric vehicles:

Conditions for the application of the 5.5% VAT rate for the installation and maintenance of recharging infrastructure (Article 52-0 CTCA; Article 278-0 bis CGI).

In order to benefit from the 5.5% VAT rate for the installation and maintenance of electric vehicle recharging infrastructures, the following conditions must be met

1° The charging infrastructure is installed in residential premises [regardless of the date of completion of the building] and is intended for residents;

2° The configuration of the recharging infrastructure meets the technical requirements set by ministerial order;

3° The services are provided by a person meeting the qualification criteria defined by this ministerial order.

The obligation for the lessee to provide the service provider with a certificate concerning the nature of the work and to keep a copy of this certificate is removed.

Energy renovation services in residential premises completed at least two years ago:

Redefinition of the scope of the reduced rate of 5.5% (art. 52-0 bis CTCA; article 278-0 bis CGI)

It is specified that the reduced rate of 5.5% may be applied to energy renovation services in residential premises completed at least two years ago that relate to the installation, adaptation or maintenance of materials, equipment, appliances or systems designed to save energy or to use energy produced from renewable sources by improving:

(a) thermal insulation ;

(b) heating and ventilation

(c) Domestic hot water production.

This new provision applies to the provision of services whose generating event occurs after the publication of the ministerial decree fixing the nature and content of the eligible services as well as the technical requirements, at the latest by 1 January 2024, with the exception of advance payments made before this date.

With regard to the obligations of the service provider, the novelty lies in the obligation to hold an original copy and no longer a simple copy of the written attestation that the conditions laid down are met.

Pending the publication of the ministerial order, until 31 December 2023, the services eligible for the reduced rate of 5.5% are the installation, fitting and maintenance of the materials and equipment mentioned in Article 52-0 bis 4, as it stood on 1 January 2014, namely:

1° condensing boilers;

2° thermal insulation materials for glazed walls, insulating shutters or entrance doors leading to the outside;

3° thermal insulation materials of opaque walls as well as thermal insulation materials of all or part of an installation for the production or distribution of heat or domestic hot water;

4° heating control devices.

These materials and equipment must comply with the technical characteristics and minimum performance criteria set out in Article A-130 bis of the Annex to the CTCA, in the version in force on 1 January 2021 or, where applicable, in the latest version that mentions the material or equipment in question.

Beneficiaries of the basic exemption and imports not subject to VAT:

Exemptions from filing the recapitulative statement of customers and identification (Articles 50 A, 68 ter CTCA; Articles 256 C,, 277 A, 286 ter A CGI).

Taxpayers benefiting from the basic exemption are exempt from the obligation to file recapitulative statements for intra-Community supplies of goods. This is a legalization of the administrative doctrine.

In addition, taxable persons who only import goods for which no VAT is paid are exempted from having to identify themselves by means of an individual identification number.

Imports of goods not subject to VAT are determined by ministerial order.

Non-allocation or invalidation of the individual identification number:

Extension of the control mechanism (Article 68 bis CTCA; Article L. 10 BA Livre des Procédures fiscales).

It is added that the identification number may not be allocated or may be invalidated in the event that the obligation to be represented by a taxable person established in Monaco and accredited to the Directorate of Tax Services is no longer respected.

Furthermore, the number may be invalidated in the database of taxable persons established in the Member States by the administration where there is corroborating evidence that this number is used by an identified trader who knew or could not have been unaware that he was involved in a fraud aimed at avoiding paying the tax due in Monaco or in the European Union.

The decision to invalidate the individual intra-Community VAT identification number, stating the reasons, must be notified to the identified trader, who may submit his observations.

The number shall be reinstated without delay when the identified trader, as the case may be:

1° has put an end to the shortcomings;
2° has regularised the situation resulting from the shortcomings;
3° has removed the obstacle to the tax audit operations;
4° has transmitted observations that justify the reinstatement.