30th September 2022: last deadline for foreign companies to regulate their intra-Community distance sales in France without penalties

published on 1 July 2022 | reading time approx. 4 minutes

Companies not established in France who, before the entry of the OSS on July 1st, 2021, have made intra-Community distance sales to France for which they have omitted to collect VAT in France may regularize their situation before September 30th, 2022 without applying late payment penalties. After this deadline and in the case of no regularization, foreign operators may face severe penalties.

• What is the context? »

• What are the procedures for regularization? »

• What are the consequences of this regularization? »

• What are the penalties for failure to regularize? »
  

What is the context?

As a reminder, an intra-Community distance sale (ICDS) is the delivery of a tangible movable good dispatched by the seller or transported on his behalf from a European Union (EU) Member State to another Member State if the purchaser of the good residing in the Member State of destination is a private individual or a person benefiting from the derogation scheme.

As a reminder, until 30th June 2021, the rules applicable to ICDS were based on the principle of VAT taxation in the country of destination of the goods when the annual sales exceeded a certain threshold, the amount of which was set by each EU Member State (between €35,000 and €100,000). This threshold was set at €35,000 in France.

This system was modified by the 2020 Finance Law with the introduction of the OSS system, which came into force on 1st July 2021, allowing companies to avoid having to register in each Member State in which they carry out distance sales by allowing them to report these transactions directly in their country of residence. In addition, the threshold for distance selling that triggers taxation in the State of destination of the goods has been harmonized and is now set at €10,000 for all European States and no longer for each individual country.

At the time of this reform, some companies carrying out distance sales found that they had wrongly submitted all of their sales in the European Union to VAT in the country of departure of the goods. Based on this observation, the tax authorities had already provided, in a clarification dated 1st December 2021, for the possibility for foreign companies to obtain a refund of the VAT wrongly paid in France.

On 24 May 2022, the tax authorities completed its analysis by publishing a practical sheet detailing the procedure to be followed to regularize the situation of companies who, before 1st July 2021, wrongly subjected their distance sales to VAT in other EU Member States, whereas it should have been taxed in France.

Which companies are concerned by the regularization?

The regularization measure concerns companies who:

• have made spontaneous declarations to the tax authorities. This excludes companies who are subject to a tax audit already initiated by the administration; and
• have actually paid the VAT relating to the distance sales concerned in the EU Member State of departure of the goods. In such cases, they will have to provide a certificate proving this payment. Companies who have not subjected their distance sales to VAT in either the Member State of departure or arrival of the goods are thus excluded from this scheme.
  

What are the procedures for regularization?

A file setting out in a precise and detailed manner the reason for the request for regularization must be provided to the Foreign Business Tax Department of the French tax authorities (SIEE) before 30 September 2022 in order to benefit from the absence of penalties applied by the tax authorities

This file must include :

• in paper or electronic format, the corrective VAT returns (CA3) indicating the amounts of VAT for the distance sales omitted for each year, as well as the supporting documents relating to these transactions; or
• as a practical matter, particularly in the case of a very large number of transactions, a table detailing the amount of distance sales made and the corresponding VAT, year by year and by transaction.

The administration will verify the conformity of these elements.

What are the consequences of this regularization?

Due to this regularization, these operators will be in a situation of double taxation since they will be subjecting to VAT in the other State their distance sales which they had initially subjected to VAT in the State of arrival of the goods.  In order to avoid this double taxation, companies can apply for a refund of the VAT wrongly payed in the Member State of departure of the goods.

However, in order to avoid a transaction not being subject to VAT in any Member State, companies will also have to prove that they have not requested from the administration of the Member State of departure of the goods relief of VAT paid wrongly on the distance sales transactions concerned over a longer period than that covered by their request for regularization.

Thus, there are two possible scenarios:

N.B.: in order to avoid a situation of non-taxation, the French tax authorities plans to systematically notify the competent authorities of the Member States of departure of the goods of the regularizations carried out in France, as well as of the period covered by these regularizations in order to make the periods of relief and regularization coincide. In addition, the Commission will ask these foreign authorities to be kept informed in the event of subsequent requests for relief by the companies concerned.

Examples

A company who has submitted a request for regularization in respect of intra-Community distance sales made to France in 2019 and 2020.

• If the company has obtained or will be able to obtain a refund of VAT wrongly paid in the country of departure of the goods only in respect of these two years, then the regularization will relate only to transactions carried out in respect of the years 2019 and 2020;

• if the company has also obtained a VAT refund in 2017 and 2018, then the regularization in France will relate to the transactions carried out in respect of the years 2017, 2018, 2019 and 2020, even if some of these years are in principle time barred.

What are the penalties for failure to regularize?

Companies not established in France who have completed all the necessary steps to regularize their situation before 30th September 2022 will only have to pay the additional taxes charged to them by the French tax authorities as well as the related late payment interest at the rate of 0.2% per month (article 1727 of the CGI).

This is precisely the interest of this spontaneous regularization. The penalties incurred by operators in the absence of regularization of their taxable distance sales in France can indeed be very heavy:

• Application of the 10 percent surcharge on the amount of VAT due in France for non-declaration or 40% in case of deliberate non-compliance (the 5 percent penalty for delayed payment can be avoided if the payment is made at the same time as the late declaration is filed);
• Application of the late payment interest at the rate of 0.2 percent per month;
• Possible application of penalties for not submitting the old Intrastat-Returns, i.e. up to €1,500 per non-filed or erroneous declaration;
• In the event of the tax authorities qualifying the exercise of an occult activity in the context of a tax audit:
  - Extension of the recovery period of the French tax authorities from 3 to 10 years (art. L176 al.2 LPF)
  - Application of a surcharge of 80% on the VAT adjustment payable by the company (art. 1728-1 c of the CGI)

Until now, the French tax authorities did not apply the above penalties, if at all, in case of spontaneous regularization. Given the publication of these comments, we strongly advise companies that could still be concerned by a VAT regularization on their distance sales for the period before 1st July 2021, to proceed with this regularization before 30 September 2022. It is indeed to be expected that, after this date, the French tax authorities will be less tolerant and will systematically apply these penalties.