Understanding VAT Mechanisms and Regimes

French Fiscal System Overview

• Essential definitions and concepts within the French fiscal system are outlined.

Lexicon of French Fiscal Terms

• Abattement: A standard deduction from the taxable base.
• Acte sous seing privé: A written agreement signed privately by parties.
• Action: a negotiable security representing capital ownership.
• Assiette: The rules or operations to determine what is subject to tax, synonym of "base".
• Assujetti: A person subject to a tax.
• Avis d'imposition: An official document showing tax calculation, amounts, and payment terms.
• Avis de non-imposition: An official document stating no tax is due.
• Budget: Legislative texts authorizing state revenues and annual expenditures.
• Details accounts describing State resources and expenses for the year.
• It provides details of ministry credits for a given year.
• Champ d'application: Scope of a tax law's application regarding activities, assets, and time/space limitations.
• Contribuable: A person directly responsible for paying taxes, fees, or duties enforced by law.
• Crédit d'impôt: A tax credit that can be applied against taxes owed.
• Décote: A method of reducing the calculated tax amount.
• Déduction: A subtraction from gross profit or income.
• Imposable: The tax status based on individual activities or nature that falls within the scope of the tax law.
• Liquidation: Calculating tax by applying rates to the taxable base.
• Meubles meublants: Furnishings and movable items within a residence.
• Obligation: a negotiable debt instrument issued by a company or public body, bearing interest.
• Patrimoine: Total assets of an individual or entity.
• Personne morale: A legally recognized entity, a cooperation.
• Prescription: The time limit beyond which legal action is barred.
• Quotient familial: A mechanism to adjust income tax based on household size, dividing income by the number of "parts" dependent on the taxpayer's situation.
• Recouvrement: The recovery of taxes, the operation by which the Treasury's claim becomes certain on a determined date.
• Redevable: A person responsible for paying a tax.
• Réduction: Tax reduction or relief.
• Résidence principale: Primary dwelling of a taxpayer.
• Rôle: A list of taxpayers indicating tax amounts due.
• Valeur locative: Rental value of a property, distinguished between administrative (cadastrale) and market values.

General Principles of Taxation in France

• The brochure presents the main aspects of the French tax system for a foreign audience
• Taxation's place among mandatory contributions and in the French legal framework is defined.

Definition of Tax in Relation to Other Mandatory Contributions

• Mandatory contributions include taxes, fees for services, customs duties, and social contributions.
• Taxes are monetary charges on individuals/entities based on ability to pay, without direct reciprocation, intended to cover public expenses and socio-economic goals.
• Fees for services are charges for using public utilities.
• Customs duties protect the domestic market.
• Social contributions are distinct from taxes, earmarked for social protection, generating reciprocal benefits.

Legal Basis of Taxation in France

• Article 13 of the Declaration of the Rights of Man states public contribution is essential.
• Article 14 grants citizens the right to determine the necessity, allocation, amount, basis, collection, and duration of public contribution.
• Unlike other mandatory levies, taxes derive from legislative acts (Parliament).
• Article 34 of the Constitution empowers law to define rules about the base, rate, and collection of taxes.
• The executive branch manages the implementation of tax rules defined by the Parliament

State Budget and Organization of DGFIP Services

• State tax revenues represent over 94% of total state revenues, including direct and indirect taxes.

Budget Details

• Net tax revenues for 2024
  • Value Added Tax (VAT): €100.8 billion.
  • Income Tax: €93.4 billion.
  • Corporate Tax: €72.0 billion.
  • Domestic consumption tax on energy products: €15.4 billion.
  • Others Fiscal Contributions: €67.0 billion.
  • For a total of: €348.6 billion
• These revenues enable the state to implement its different public policies.

Types of Tax Revenues

• Direct taxes are borne directly by the individuals or entities on whom they are levied, often collected through a nominative list (rôle).
• Taxpayers cannot shift the burden to other economic actors unlike the taxes levied.
• Indirect taxes are taxes on spending, included in the price of goods/services, paid by the consumer, and remitted to the State by business.
• There are two categories of taxes: Value Added Tax (VAT) which is based on consumer spending habits, and indirect contributions where specific taxes are linked to specific products or activities.
• VAT generates the most revenue.

State budget allocation

• 16% Reimbursements and tax relief
• 3% Security measures
• 1% Aid
• 2% Prêts
• 7% The State's financial engagements
• 1% Research
• 8% Defence
• 3% Work
• 1% Equality and equity
• 1% Prêts
• 4% Ecology
• 2% Cohesion
• 11% Education
• 16% Transfers to local authorities
• 1% Prêts
• 8% Pensions

Organization of DGFIP (Direction Générale des Finances Publiques) Services

• Focuses on services for individuals and businesses.

Individual Tax Services (SIP)

• Located in urban areas, SIPs handle the calculation and collection of taxes from individual taxpayers.
• SIPs are the primary contact for declarations, exemptions, claims, payments, payment deadline requests for income tax, local taxes, and television license fees.
• Fiscal proximity offers local support for frequent tax-related questions and assistance with tax procedures.

Business Tax Service (SIE)

• SIEs are the primary point of contact for SMEs, traders, artisans, farmers, and professionals for filing business tax returns (income, VAT, CFE, CVAE) and paying main business taxes (corporate tax, VAT, payroll taxes).
• Large corporations have a dedicated contact point, the Direction des Grandes Entreprises (DGE)

Summary of Key Points

• Main principles:
  • the Law must define tax rules (basis, rates, collection).
  • taxation should be equal.
  • taxation should be a necessity.
• Direct taxes are paid directly to the government by the taxpayer like income/corporate taxes.
• Indirect taxes are paid by the taxpayer but collected and remitted by a third party like VAT.
• Assujetti: person subject to tax
• Contribuable: person who bears the tax
• Redevable: person who pays the tax
• Liquidation: calculation of tax
• Assiette de calcul de l'impôt: tax base
• Recouvrement: collection of tax by the tax government of tax by the tax administration either spontaneously, after sending a tax notice, or by deduction at source