Value added tax (VAT) measures concerning new requirements for cash systems and software are effective 1 January 2018.
These new VAT provisions are intended to address perceived VAT fraud or abuse. According to certain estimates, the French treasury is missing on collecting approximately €14 billion of VAT revenue each year. The Finance Bill for 2016 was intended to counter the loss of at least a tenth of this amount by making it mandatory for taxpayers to operate on “secure systems.”
At the outset, it was intended that all VAT taxpayers that record customer payments using accounting, management or cash software (i.e., any equipment that serves to automate calculations and record cash transactions—accounting software, management software and cash systems), were to use secured and certified software. On 15 June 2017, following the election of President Macron, the new Minister for Public Accounts and Public Action issued a statement modifying the scope of the proposed legislation. In its final form, the bill would only apply to cash systems and software. However, there were many unanswered questions. The French tax authorities on 28 July 2017 released a set of “frequently asked questions” (FAQs) setting forth their position on several items, but leaving others up to the final bill (as expected in the coming months).
The new requirements provide that as of 1 January 2018, all VAT taxpayers established in France and entering into transactions with “private customers” are to use a cash system or software for purposes of recording the sales of goods or sales of services provided. The requirements impose an obligation on VAT taxpayers so that they now have an obligation to use systems that provide for conformity with regards to four main aspects—no ability to alter; security of the system; storage; and archiving records.
The focus of the new requirements is mainly to address VAT fraud in business to customer (B-to-C) transactions. Transactions between VAT payers generally are not within the scope of the new requirements. Also, the manner how a payment is processed by a private customer does not appear to be relevant to the application of the new requirements (i.e., the new requirements will not solely apply to cash payments).
A new process of control (“unannounced” audit process) has been introduced to assist in determining the VAT taxpayer’s conformity of its cash systems and software with the new rules. A failure to produce adequate attestation or certification for each cash register or solution used by a VAT taxpayer could result in a penalty assessment of €7,000 per system or register of the entity. Given that this penalty is renewable (that is, can be assessed more than once) after a 60-day period, VAT taxpayers could find the penalty amount to become exponentially material—particularly within groups having many subsidiaries or entities having numerous cash desks. Moreover, a penalty assessment could cause the French tax authorities to question their trust of the VAT taxpayer, and the VAT taxpayer’s failure to comply with the documentation measures could also trigger a full tax audit.
Tax professionals with Fidal* have observed that companies established in France and registered for VAT in France—acting either as a seller of goods or as a service provider in transactions involving individual customers—need to consider steps now to prepare for the new VAT documentation rules. For those involved in developing software, the fact that the French tax authorities will evaluate the different layers of a solution could potentially require what might be described as a multi-function tool for certification of their cash management functionalities. Thus, software developers need to be ready to deliver adequate attestation or go through a certification process.
These requirements will also apply to foreign software developers—they may find it is nearly impossible to sell cash systems or software that do not meet the new standards. Customers would need to require either the appropriate attestation from the developers or proof of certification of the solution. Ultimately, the new requirements add to the responsibility of developers in France (e.g., since 2014, software developers can be subject to significant penalties on providing “unsecure systems”). Experienced tax professionals can help businesses and software developers understand the new requirements.
For more information, contact a tax professional with Fidal* in France or with KPMG in the United States:
Laurent Chetcuti | + 33 (0) 1 55 68 14 47 | email@example.com
Patrick Seroin | + 1 (917) 327-4127 | firstname.lastname@example.org
* Fidal is a French law firm that is independent from KPMG and its member firms.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.