In a Decree dated September 29, 1994, the Tax Administration gave some precision related to the VAT regime applicable to factoring operations.

This Decree sets as a rule the case law of the Supreme Court ("Conseil d'Etat") which stated that the due date of a tax linked to services is the date when the debt is actually paid by the debtor and not the booking date, in the current accounts of the member, of the sums corresponding to the settlement of the invoices issued by the invoicer (CE, July 27, 1984, nø 29-388).

It also provides for the modalities of recovery of the VAT collected for an unsettled operation.

It may be reminded that the factoring system requires the intervention of three parties:

- The factoring company (or factor) which manages the clients accounts of its members and recovers the debts. It opens a current account for its members and credits it with the amount of their clients' debts.

- The member who transfers to the "factor" all receivables at his disposal on third purchasers.

- The member's clients.

The factoring company receives a compensation for services rendered to the member: it purchases the member's receivables and recovers them later on its own behalf.

The factoring operations are linked to the negotiation of receivables and are in this respect exempt of VAT according to Article 261-C-1ø of the French General Tax Code. Nevertheless, the factor may elect the payment of VAT linked to the factoring operations. These elections cover all commissions received (the Tax Administration thus gives precisions to which extent the election is contemplated).

The member, as for him, deducts under the common law conditions, the VAT mentioned on factoring commissions invoices when the factor elected the payment of VAT.

As mentioned above, the Decree precises that the due date for VAT linked to a service is the date of payment of the debt by the debtor and not the date when the member's account is credited with the amount of the transferred debts.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. For additional information contact Claire Acard on 33/(1)/55 61 10 10 or Lionel Benant on 33/ or enter text search: "ARCHIBALD ANDERSEN Profile". The members of ARCHIBALD ANDERSEN Association d'Avocats (S.G. Archibald and Arthur Andersen International) are registered with the Hauts-de-Seine Bar and the Lyon Bar.