The French tax authorities have revised the rules concerning the determination of VAT deductions—i.e. the deduction of VAT input tax with respect to incidental financial transactions, and how to calculate the deductible proportion—when certain “incidental” financial products are involved.
Specifically, in February 2013, the French tax authorities amended the rules in the official VAT guidelines with respect to how to calculate VAT input deductions of incidental (accessory) financial transactions and products.
The new guidelines—which follow an October 2011 decision of the Conseil d’Etat—limit the possibility for taxpayers to treat some financial transactions as “incidental” and reaffirm the tax authorities’ position that the financial product must not be a direct, permanent, and necessary extension of the taxpayer’s activity to be disregarded for calculating the deductible portion of VAT.
This change may apply to all businesses—and potentially result in a reduction of the amount of the VAT input deduction….