Q:
1)If an American Company sub contrats to a UK company and the project site is in france, should the UK company (who is doing work in France but invoicing the American Company) charge VAT on the invoice to the American Company?
2)Could the UK company put the French VAT number belonging to the French Company (the American Company’s customer) on the invoice to the American Company and then use the reverse charge rules?
Thank you.
A:
Hi Carol
Good question and I’m going to have to check out a couple of things before answering – hopefully this week – but you don’t way what sort of work is involved?
As you say “project site” am I right in assuming that you mean property construction? If not, what is it? It’s important as it may determine whether or not either UK or US company has to register for VAT in France rather than use the reverse charge rule.
Also, please bear in mind that although all EC member states operate within the same EC Directives for VAT purposes, each country operates the rules in their own way. In some countries, the tax authorities will allow more or less all imported services to be accounted for using the reverse charge, while other countries require the overseas suppliers of certain services to register. This would generally always apply if the customer is not registered for VAT in teh country in which the supplies are received. I’m not certain how the French apply these rules but I can have an initial look, once I know for certain the natuer of the contract involved here.
Assuming it’s property construction, then the place of supply would be where the work is carried out, i.e. France. The French rules may allow the French customer to account for VAT under the reverse charge on the charge from the US contractor. However it’s possible that the UK company may be required to register for VAT in France as its’ supply is being made to the US company and the reverse charge can normally only be used by businesses who are registered for VAT in an EC member state.
There are other aspects to consider as well – for example it may be more practical for the US to register for VAT in France in order to speed up recovery of French VAT.
If you can clarify the nature of the contract, I’ll be happy to give this some further thought and point you in the direction of the French guidance on teh subject.
Marie
Q:
Hi Marie,
The type of work is remediation, which is cleaning up contaminated land, however it is a pilot project which involves research and scientific analysis, which may or may not result in a contract to clean up the whole site, depending on the success or otherwise of the pilot project. I have looked at HMRC notice 741a and I think that the pilot project may be exempt from “services to land” which, as I understand, means the place of supply would be USA, but I am not 100% sure. We are registered for VAT in the UK but not in France. Our American customer is not registered for VAT in France. I think we also need to consider if we are classed as an agent or intermediary and if we are, does that have any implications on place of supply and therefore what rate of VAT should be charged.
Thank you
A:
Hi Carol
There are a lot of technical issues involved here and although you’ve clearly read up on the subject, I think that there are some points I need to emphasise.
First of all, bear in mind that the guidance given in VAT Notice 741a is HMRC’s interpretation of the EC Directive and how it applies in the UK. The French may have a different interpretation of how remediation of contaminated land should be treated for VAT purposes.
Second, for VAT purposes I don’t think that there are any situations where the place of supply in this case would be the US.
From past experience, I would say that the French follow the Directives quite literally (not surprising as they were originally drafted in French!) and that they would take the view that the place of supply is France.
Please also bear in mind that there are 2 separate issues – the place of supply is where the supply is deemed to take place. This is different to “who accounts for the VAT” – i.e. whether the supplier is required to register for VAT in the country where the supply is deemed to take place and charge VAT to the customer; or whether the customer can account for reverse charge VAT.
What this means is that if the supplier of the services is not “established” in France, then the customer would account for VAT using the reverse charge procedure AS LONG AS THE CUSTOMER IS REGISTERED FOR VAT IN FRANCE. I can’ t be absolutely certain, but if you ask the French customer if they believe that they can account for reverse charge VAT, this should help guide you in the right direction. Of course, that’s no guarantee that they have it correct – I’d still recommend getting confirmation from the French tax authorities to be certain that the US company isn’t required to register for VAT in France.
Furthermore, the use of a UK subcontractor would also make things more difficult. I assume that the UK sub would invoice the US main contractor, who would invoice the French customer. That makes things difficult because the UK sub would, in principle, have to register for VAT in France and charge French VAT to the US company because the reverse charge can only be used if the customer is registered for VAT in France. You also mention the fact that there could be some agency arrangements involved – presumably the UK sub would be acting in the name of the US company, so that complicates things even further.
Dealing with the French tax authorities isn’t always easy – not only is there the language barrier but also the practical side of things as their way is different to ours. So you really need local advice.
I’d be happy to have a no-obligation chat with you about this if you’d like to send me your contact details even if just to help you clarify the main issues. I’m the first to admit that I couldn’t give formal advice on non-UK VAT issues. Plus if there are agent arrangements involved, you might want to consider taking advice from a French solicitor who has knowledge about the French tax rules to make sure that you’ve got the tax arrangements correct.
Marie
Q:
Hi Marie,
Thank you for your help. The American customer is not registered for VAT and as you suggested I am in contact with the French customer to see if we can reverse charge with them. If not I intend to contact the French authorities to find out if we need to register for VAT in France. Do you have any contact details for the French VAT Office?
Thank you again.
Carol
A:
Hi Carol
Sorry it’s taken me a few days to reply – I’m in the course of moving house and you know how that is!
Here is the EC guidance to VAT in France: http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/traders/vat_refunds/2010/vademecum-refund-france_2010_en.pdf
VAT in France is referred to as TVA. The guidance includes the contact details for the French tax authorities on the first page for non-established traders, i.e. businesses with no establishment in France.
I hope this enables you to sort things out. I would be interested in the outcome, so please let me know what the French tax authorities advise.
Regards
Marie