A French department store has a financial subsidiary whose main activity is to propose a specific consumer credit to the department store's clients: the amount lent by the financial institution to the clients is represented by vouchers which they can use to pay for their purchases. The financial institution's profit partly consists of the credit operation itself and partly of a commission it gets on the refund of the vouchers to the department store.

As the financial subsidiary had expressly elected for VAT, pursuant to article 260 B of the French tax code the question raised first during a tax audit by the French tax authorities and later before the French tax Court, was whether or not the commission could be assimilated to one of the financial operations provided by article 260 C of the French tax code that are not subject to VAT, even if the company expressly elects for VAT.

According to Mrs. Micheline Martel, a magistrate who examines and presents cases to the Administrative Court, the commission has, in the case at hand, a dual nature :

  • it is partly commercial as remunerating a clientele prospecting activity ( i.e. subject to VAT);
  • and partly financial as being represented by discounting interest (i.e. not subject to VAT).

The Paris Administrative Court of Appeals, which settled the issue in a decision dated April 1, 1996, ruled that because the financial institution did not establish the commission as exclusively having a commercial nature, and because the receipts of such nature had not been separately booked, the whole commission had to be subject to VAT.

The content of this article is intended to provide a French guide to the subject matter. Specialist advice should be sought for your specific circumstances.

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