In furtherance of Article 153 of the Finance Law for 2020, the Directorate General of Public Finance (DGFIP) has just submitted its Report on the development of e-invoicing in France to the Parliament on last November 3: “VAT in the digital era in France”.
With a view to combating VAT fraud and under the impetus of international reforms on periodic and continuous transaction control (CTC models: “Continuous Transaction Controls"), the French government, through Article 153 of the Finance Law for 2020, wishes to generalise e-invoicing between taxable persons from 2023/2025.
The development of e-invoicing in France is the result of a long process initiated by directive of 13 July 20101 (amending the 2006 VAT Directive). This directive sets out the framework for B2B e-invoicing in EU countries, with the "preamble" that the use of this method of invoicing be subject to acceptance by the recipient.
As part of the B2G relations, a generalisation of e-invoicing has already been carried out in France and more generally in Europe under the auspices of Directive 2014/61/EU.
With regard to the generalisation of B2B e-invoicing in France, a new step has just been taken with the submission of a report to Parliament by DGFiP to provide clarification on the scheme.
This generalisation is intended to benefit both companies and the authorities as it would in any case:
In order to meet these objectives, the report structured in two parts (general presentation and technical analysis), first recommends the mandatory electronic transmission of sales invoices between the supplier and its customer through a platform (or several platforms), which may belong to the state or private (possibly certified by the State).
Two technical diagrams/solutions are presented:
(1) Directive 2010/45/EU of the Council of 13 July 2010 on the common system of value added tax as regards the rules on invoicing: second Invoicing Directive.
At this stage, the report highlights the numerous constraints inherent in the "V" model (risk of non-constitutionality with the introduction of a state monopoly for the exchange of billing data, transmission of invoices interrupted in the event of system failure, etc.).
The report clearly favours the "Y" model, more resilient and favoured by the stakeholders, which offers more flexibility, particularly for companies that have already been able to establish electronic invoicing flows (particularly EDI) via private platforms, in that it limits the costs of adaptation and entry into this reform, while also allowing other taxable persons to transmit invoices directly to the public platform.
Furthermore, the report also points out that the e-invoicing obligation cannot be extended to all transactions carried out by a taxable person, particularly due to the lack of harmonisation of the rules applicable to e-invoicing at European and global level, as well as the absence of any obligation, except for exceptions, to issue invoices in relation to B2C relations.
Thus, in order to effectively combat VAT fraud, this obligation must also be accompanied by an obligation to transmit data ("e-Reporting") in order to be able to cover a wider set of flows and obtain more information essential for the identification of the VAT treatment applied (payment of invoices, etc.).
The obligation to issue electronic invoices would be limited to domestic transactions between persons subject to VAT (in accordance with article 256 A of the French General Tax Code) falling within the general and territorial scope of the invoicing rules
Furthermore, foreign taxable persons not established in France would not be subject to the provisions of article 153.
Adjustments and clarifications will also be expected for specific business sectors currently provided for by the doctrine such as banking and finance sector, construction works and micro-entrepreneurs.
With regard to the content of invoices, all the tax references stipulated in article 242 ninth A of Appendix II to the French Tax Code (“Code Général des Impôts) must appear on the invoices as well as the mandatory commercial information currently provided for by the French Commercial Code.
However, for the purposes of the fight against fraud, other data must be indicated in the invoice, in particular the buyer's identifier (corresponding to SIREN number). Thus, a change in the legislative framework will have to be made by the legislator.
With regard to other additional information, such as "business information" (mode of delivery, or incoterm, VAT codes, partner functions, etc.), the latter should not be made mandatory, even if often considered relevant to the determination of VAT rules on transactions.
First of all, if the report mentions that taxable persons not established in France would not be subject to the provisions of Article 153, the latter does not explicitly mention taxable persons who are or would not be affected by this additional e-reporting solution.
As part of this related obligation, the report identifies three categories of additional data:
However, this information is essential to determine the taxable amount for VAT when carrying out first level controls, checking the correct application of VAT rates or whether a particular customer carries out undeclared occult business activities. The data collected shall concern, by transaction, their date, amount excluding tax, the VAT rate and the amount of VAT due, but shall not mention the consumer's registered indication.
As regards the latter point, it would be important to note that on some occasions the report also addresses the obligation to report information related to certain flows of purchases, including imports. The scope of this obligation must therefore be specified by the Government.
With the objective of preserving the use of current invoice exchange solutions, the Chorus Pro platform (already tested by the French Agency for State Financial Information Technology (AIFE) from January to June 2020) will be used as the relevant tool through which all data of exchanges between companies will be transmitted to the IS of DGFiP. However, the use of Chorus Pro platform will require some adjustments (usability, communication, reporting and management functions of companies and their users, interfacing arrangements, ability to collect significant volumes in B2B, etc.).
As it has been done for the deployment of the Chorus Pro platform for B2G invoices, and to take into account the impact that such reform should have on companies, the implementation of the electronic invoicing obligation will be extended over time:
Clarifications on the legal and technical work to be carried out
First of all, DGFIP first recalls that the European Commission, as part of its action plan adopted on 15 July 2020, began work on the transmission of transaction data as well as the development of e-invoicing as part of the B2B exchanges.
It states, however, that this work should not be completed in the short term (not before 2026/2027) and that the generalisation of mandatory e-invoicing in France is carried out with a view to an easy adaptation to the European system that could be adopted.
It is also specified that the reform of Article 153 should not result in major changes in the current tax regulations, particularly with regard to the following points:
The anticipated legislative amendments would focus on:
This essential point will strengthen the effectiveness of the system to combat VAT fraud, even if the flexibility of the current ECJ case law must be assessed when the taxable person establishes that the material conditions (i.e. funds) of this right are met (ECJ 5-12-1996 case 85/95, John Reisdorf, ECJ 21-11-2018 case 664/16, Lucreţiu Hadrian Vădan)
With regard to the obligation to of the Reliable Audit trail within the meaning of article 289 VII 1° of the General Tax Code, DGFIP specifies that the implementation of the electronic invoicing obligation cannot automatically exempt taxable persons from this obligation and remains relevant. The Reliable Audit trail is therefore maintained and will always be an important asset for companies in their relationship with the tax authorities in the event of an audit.
In addition, DGFIP recalls the obligation to obtain derogations from certain guiding principles currently laid down by the VAT Directive (through Article 395) and also details the various regulatory work to be carried out with a view to ensuring compliance with French tax legislation. The implementation of Project 2023 must be carried out in accordance with the rules of the common VAT system defined by the VAT Directive (necessity and proportionality of the requested derogations and reasons for the lack of alternative solutions under current law).
Finally, the report highlights the obligations of the various parties (public platforms, private platforms, etc.) with regard to sensitive and personal data, in particular with regard to compliance with the GDPR.
The DGFIP report is a major step forward in implementing a mandatory e-invoicing solution for French companies.
However, many issues remain to be addressed and will need to be clarified in the coming months with all stakeholders, in particular:
Finally, this report highlights the recognition of future developments at Community level since the European Commission has initiated work on the transmission of transaction data by companies (with the development of e-invoicing) as part of its action plan adopted on 15 July 2020 for fair and simplified taxation.
It is highlighted that, following the report, an amendment (II-3211) to Finance Bill 2021 of 6 November was also published and adopted on 13 November, at the end of which the government proposes to act by order no later than September 2021 in order to:
In addition, the DGFiP presented on November 24, 2020 to external stakeholders its report on the e-invoicing mandate and the VAT e-reporting obligation from 2023.
A “Project Management” will be set up in early 2021 within the DGFiP, which will be responsible of the next steps. In collaboration with the AIFE (French agency for the state financial Information System), consultations organized in “Workshops” with stakeholders will be carried out at the end of 2020 / during 2021 around various themes (notion of invoice, e-reporting, control, IT format and uniqueness, archiving and directory , etc.).
Avocat, Associé, TVA & Indirect Tax Technology, PwC Société d'Avocats
Tel : +33 1 56 57 77 54