Brussels, 16/12/2011 (Agence Europe) - France has failed to fulfil its obligations under the directive on the European VAT system (2006/112/EC) by requiring taxable persons not established in France to designate “tax respondents” who are responsible for declaring and paying the tax in their name. That was the decision of the Court of Justice of the EU in a ruling on Case C-642/10 acceding to an action for failure to fulfil an obligation brought by the European Commission in December 2010.
According to the Commission, the VAT self-assessment scheme provided for in the French General Tax Code (CGI) designates the client as liable for payment of VAT when the supplier or service provider is established outside France. As an exemption to this system, a concession by the authorities (administrative instruction of 232 June 2006) allows the seller's tax return to include the VAT due from his customers under the self-assessment system and provides for compensation with regard to the seller's deductable VAT. Under this arrangement, a seller established outside France must declare himself liable to pay VAT in France and designate a “tax respondent” to declare and pay the tax in his name.
In its ruling, the Court says that no member state may, in principle, adopt a domestic measure requiring a taxable person not established in that member state to designate a tax representative. It says that states may avoid this ban by invoking the voluntary nature of the system and the options offered by the system to allow companies not established in the member state to fulfil their obligations. Any interpretation allowing member states to impose designation of tax representatives in certain cases would deprive the directive of its effectiveness, seeking as it does to ensure that there is no such imposition. Furthermore, the VAT directive makes it clear that member states cannot require taxable persons not established within their borders to declare themselves liable for payment of VAT by means of an individual number.
To introduce measures of derogation to the directive, France should have obtained the authorisation of the Council, in line with the arrangements contained in the directive, the Court said. The arguments put forward by France to absolve it of this responsibility, such as the need for traceability in the smooth operation of VAT declaration and payment procedures or the need to counter tax fraud and avoidance, were not acceptable. The 2006 administrative instruction contravenes the directive in that it makes provision for compensation between the deductable VAT to be paid by the non-established taxable person for his transactions and what is collected by him in the name of and on behalf of his clients. (FG/transl.rt)