By Marcus Gray, Product Manager, Tax Compliance & Interoperability, Tradeshift
Compliance with e-invoicing mandates and tax reform remains a challenge for most companies as more and more countries drive towards mandated real-time data exchanges to combat instances of tax fraud. Tradeshift is your international go-to partner for ensuring e-invoicing compliance across borders.
France is moving to a continuous tax clearance (“CTC'') model joining many countries around the globe in overhauling tax reporting procedures. The proposed French system aims to combat fraud, reduce the VAT gap, and reduce the administrative burden on French businesses.
CTC regimes have been around for almost two decades; governments in Latin America have mandated real-time control frameworks, resulting in economic transparency, increased revenue collection, and reduction in fraud firmly placing real-time reporting on the radar of many countries.
A number of European countries, including France, have published or expressed an intention to rework tax reporting and collection systems to combat “lost VAT”, commonly referred to as the “VAT Gap”. The VAT Gap is currently estimated at an eye watering 164BN EUR for 2020 across the European Union.
France, one of Europe’s largest economies, reported a VAT gap of 12.7BN EUR. France’s tax system reform will assist in closing the French VAT Gap, bring efficiencies to business and reduce the administrative cost of combating fraud.
France’s move towards mandated e-invoicing is a considerable investment by the French government to tackle France’s VAT Gap.
At present, France does not mandate B2B e-invoicing as some countries do. Mandated e-invoicing in France extends only to French businesses issuing invoices to a government body (often known as “B2G invoicing''). Invoices to government bodies must be submitted electronically via the Chorus Pro platform.
France intends to roll out mandatory B2B e-invoicing and e-reporting in the coming years to move towards a “mixed CTC model.” Mandatory B2B e-invoicing will lay the foundation for the system alongside e-reporting that aims to capture data on certain B2C transactions and payment-related information.
A B2B e-invoicing system will certainly assist in the elimination of fraud. However, a complementary set of data, known as “e-reporting,” will further assist elimination of fraudulent transactions in France.
France’s clearance solution incorporates e-invoicing and e-reporting to capture transactions that fall out of the net of e-invoicing. E-reporting involves the periodic disclosure of data on the status of payments made in relation to services and a range of B2C transactions.
There has been considerable analysis on how e-invoicing transactions will be cleared.
The main review point centred on the exact clearance point of a transaction between trading parties, that is whether the Chorus Pro platform would serve as the only clearance point for a transaction or should third-party service providers also act as a clearance point.
There is a strong preference for the latter since enabling third-party service providers to also act as a point of clearance removes a single point of failure. Invoicing parties have the choice to connect directly with the Chorus Pro platform or or connect directly to a certified third-party service provider (partner dematerialisation platform/ PDP).
France is delivering CTC in a three phased approach over the coming three years.
The CTC reform will initially affect selected large businesses in 2024 with eventual roll-out to smaller businesses by 2026. All companies regardless of their size must be capable of receiving e-invoices by 2024.
The extent to which CTC reform impacts businesses is mixed; however, e-invoicing will affect all businesses established in France, while e-reporting impacts businesses not established in France but trading under a French VAT number.
Similar to regular invoices, e-invoices will also need to be stored for a certain period of time (6 years for tax purposes and 10 years for commercial law purposes).
Get in touch with our experts who can help you prepare for the French CTC Reform or learn more about our e-invoicing solutions.