This episode of VAT Talks is all about France. Recently the French tax authority released a report ‘VAT in the Digital Age’ in which the method of implementation of mandatory e-invoicing combined with e-reporting is proposed. The decision of the French government shows once more that real-time reporting is quickly becoming the standard throughout the European Union and the world. We’re honoured that Laurent Poigt, Partner in the VAT team of PwC Société d’Avocats, took the time to analyse the report with us. We discussed the current French VAT system, the objectives of the new e-invoicing regime and the roadmap of implementation.

For how long have you been working in VAT?

“I started VAT at FIDAL/KPMG in the early 2000s. I have been a VAT lawyer for almost 18 years now. I am currently a Partner in the VAT team, in charge of the ‘Technology & Transformation’ activities within PwC Société d’Avocats.”

In previous episodes of VAT Talks, we saw that VAT professionals are very passionate about VAT. What makes you so passionate about VAT?

“Since the end of my university career, I have always been interested in VAT. VAT is a very operational tax that impacts the organisation and governance of companies. It’s the practical side of the subject that appeals to me, particularly when technology is involved.”

“Afterwards, I won’t hide from you that the current delicate period makes us think a lot about the intrinsic importance of our work when the world no longer works properly. Therefore, the word ‘passionate’ no doubt deserves to be put into perspective. But in any case, I appreciate what I do and if I can, at my humble level, help the teams I work with to discover VAT, otherwise it will be a sure bet!”

Before diving deeper into the latest developments within the French VAT system, could you tell a bit more about the current French VAT system and why it is prone to fraud?

“VAT fraud is multifaceted and covers many areas of activity, carousel fraud, false invoicing, fictitious/unjustified VAT refund requests for B2B flows but also fraud on cash register software and e-commerce fraud for B2C flows, etc. The emergence of new technologies, such as artificial intelligence, automation of robotic processes, or data-mining, and the awareness of the advantages they offer, are pushing tax administrations, and more generally governments, to rethink their methods of controlling transactions in order to combat VAT fraud in particular.”

“With the aim of combating VAT fraud, more and more Member States, including France, are taking measures to facilitate the control and transparency of companies’ financial data or the collection and analysis by tax authorities of data on the flows and transactions of taxable persons, particularly those relating to invoices. In France, in 2019, 22% of tax audits will have been scheduled using data analysis methods and the trend is towards the generalisation of these methods.”

“Also, in a report dated 2 December 2019 by the Court of Auditors, it was pointed out that VAT fraud would represent a loss of revenue of around €15 billion per year for France. The e-commerce sector is often singled out as having significant opportunities for VAT fraud in this dematerialised economic sector where it is complicated to carry out checks on virtual operators who do not have permanent establishments on the national territory. On this point, a report by the General Inspectorate of Finance in France of 9 December 2019 also denounced massive VAT fraud by most foreign sellers who use e-commerce platforms to sell their products in France without being registered and without paying VAT.”

“However, in recent years and in many areas, France has been working to strengthen its regulatory measures and its organisation of controls.[1]”

A report regarding e-invoicing coupled with e-reporting now has been presented to parliament. What do you think of the main objectives set in this report for the implementation of such a regime?

“As an extension of Article 153 of the Finance Law for 2020, French Tax Authorities [i.e., Directorate General of Public Finances (DGFIP)] has just submitted to Parliament, on 3 November last, its Report on the generalisation of e-invoicing between taxable persons from 2023 in France: ‘VAT in the digital age in France’.”

“An amendment on the subject to the Finance Bill for 2021 has since been adopted on 13 November last, allowing the government to take by ordinance by September 2021 at the latest any measures to implement this reform and to specify its terms of application. The 2023 reform is in line with the objective of combating VAT fraud and under the impetus of international reforms in the area of periodic and continuous transaction controls (CTCs models: ‘Continuous Transaction Controls’).”

“The 4 ambitious objectives of Article 153 are as follows:

• Strengthen the competitiveness of businesses by reducing the administrative burden related to the management of invoices and secure commercial relations: reduction of administrative costs related to the invoicing process and limitation of disputes related to payment deadlines,
• Strengthen the prevention of and fight against VAT fraud, in particular through automated cross-checks,
• Promote knowledge of all company activities as they develop, in order to encourage a finer steering of government actions in terms of control and economic and fiscal policy,
• To facilitate VAT declarations in the medium or long term by pre-filling.”

“This reform project is fundamental for all stakeholders (companies, third parties and administration). It will design a new model for exchange and control with the administration.”

Essentially there are two elements that need to be implemented: e-invoicing and e-reporting. Could you briefly explain this distinction?

“The DGFIP report is moving towards the choice of e-invoicing supplemented by the transmission of invoicing data (or ‘e-reporting’): a ‘mixed’ model favoured by most players. The combination of e-invoicing and the transmission of additional data is necessary to meet the 4 objectives of Article 153 referred to above and will in particular provide the administration with knowledge of all commercial transactions carried out by companies subject to VAT (domestic B2B flows, domestic or cross-border B2C flows, non-domestic B2B flows or essential data such as the payment status of invoices by the customer).”

“In practice, in view of (i) the lack of harmonisation at European level of the rules on e-invoicing, (ii) the absence of an obligation to invoice in B2C (except for intra-Community distance sales) or (iii) the impossibility of imposing the issue (and therefore the receipt) of e-invoices on foreign customers/taxable persons, the introduction of the ‘only’ obligation to invoice was simply not sufficient to “capture” and ‘track’ all the operations carried out by suppliers.”

“The report states that this ‘mixed’ model will make it possible to cross-check purchases and sales and thus better combat tax fraud, while making it possible, in the long term, to pre-fill VAT declarations. With regard to the exchange of e-invoices for domestic B2B flows, two models can be envisaged:”

• ‘V’ model: compulsory transit of invoices via a public platform which ensures the transmission of invoices to the customer via a private platform, if necessary, in the form of a single concentrator. The public platform would extract useful data from the invoices for the administration and transmit them to the DGFIP’s IT system.
• ‘Y’ model: invoices can transit directly between the certified private platforms without going through the public platform. The certified private platforms would extract the information from the invoices for the administration and transmit it to the public platform, which would group them together and send them to the DGFIP’s IT system.

“In order to effectively combat VAT fraud, the e-invoicing model will also have to be accompanied by an obligation to transmit data (‘e-reporting’) in order to be able to cover a wider range of flows and obtain more information that is essential for identifying the VAT treatment applied (payment of invoices, etc.).”

“However, at this stage, very little concrete information is provided on this new e-reporting obligation (format, periodicity, exact data, etc.).”

In the so-called Y model, certified third parties will be able to ‘clear’ the invoices. Do you agree with the report that this model is the preferred option? Can the certified third parties of this model be held liable?

“In a way, yes. The report clearly favours the ‘Y’ model, which is more resilient and favoured by the players, offering more flexibility, especially for companies that have already been able to set up e-invoicing flows (notably EDI) via private platforms, in that it limits the costs of adaptation and entry into this reform, while also allowing other taxable persons to send invoices directly to the public platform.”

“This choice of certifying private operators or platforms is already being used to combat fraud in the case of cash register software which, since 2018, must be certified by 2 ‘LNE and INFOCERT’ bodies accredited by the administration.”

“However, curiously, the report does not at this stage provide precise information on the procedure for supposedly clearing invoices or not, as is the case in Italy with the public platform SdI. Will it be a completeness check on the data or will it be more qualitative? Periodicity (real time?). How will the ‘OK’ of the administration be materialised? Only the implementation of a 1st level control (allowing the rejection of the invoice as soon as a supplier or customer whose intra-community VAT number has been suspended is mentioned, without further explanation at this stage.”

“Finally, the question of the responsibility or not of these platforms and, more broadly, their exact role will also have to be clarified, as it is absent in the report. Certified private platforms will have to meet specific specifications to be able to receive invoices from taxable persons, carry out certain checks, extract data in a structured, sufficiently scalable and harmonised format that will be authorised by the administration for transmission to the public platform in fine, in particular to ensure maximum interoperability between the different platforms.”

“In any event, although in the event of disputes, private platforms could be implicated commercially in the event of disputes, the fact remains that only taxable persons will remain responsible for their VAT obligations, vis-à-vis the administration in the event of a control (as is the case today in the case of classic subcontracting of invoicing or self-billing).”

Would you recommend any adjustments or maybe even an entirely different model?

“The DGFIP’s report is a major step forward in the implementation of a compulsory e-invoicing solution for French companies and the proposed mixed Y model may prove to be very useful for the tax authorities.”

“However, for companies, particularly small and medium-sized enterprises (SMEs/VSEs), in discussions with many players, this reform is seen as above all a new administrative, technical and fiscal constraint, at least in the short term. This vision would be reinforced if, as the tax administration envisages, the other current VAT and accounting obligations remain the same (CA3, DEB, DES, PAF, FEC).”

“Also, it is unfortunately too early today to have an exact vision of the obligations that will be imposed on the actors in 2023. While the obligation to receive will have to be automatic as of 2023 and the obligation to issue progressively (2023 to 2025 depending on the size of the companies), many points remain open and will have to be clarified over the coming months with all the players during additional workshops.[2]

“Finally, perhaps, we would have liked to have had in the report some food for thought on the use of other models such as the use of a single VAT and accounting e-reporting solution, instead of the envisaged mixed model Y and the current accounting obligations of the FEC.”

“Indeed, in this model, the generalisation of e-invoicing would not be made compulsory as of 2023 (pending the implementation of a harmonised European model on e-invoicing and data exchange as envisaged by the European Commission within the framework of its action plan adopted on 15 July 2020 for fair and simplified taxation) and only French taxable persons would be required to do so, on the model of the OECD SAF-T files, periodically file a ‘super file’ of VAT e-reporting, combining all their sales and purchasing data as well as any additional logistical, payment or useful business data. This file could also be managed through certified private platforms.”

“However, this global VAT reporting model is currently not in the pipes of the administration.”

The report states that there is no Single Point of Failure in the Y-model. However, this only seems to be true for the e-invoicing part. What would be the consequence of the failure of the e-reporting part (the state owned centralised platform)? And do you foresee a reporting deadline that is near-time (e.g. 4 days) or real-time (at the time of issuance).

“Very true. The e-reporting model is mentioned as the necessary link to achieve a comprehensive anti-fraud model including B2C flows, non-domestic B2B flows and information on the status of the payment of invoices by customers. However, very little information is provided in the report on its practical implementation, in particular on the precise nature of the data (vs. that required for invoicing) or its transmission periodicity.”

“Probably, with regard to the transmission deadline, real time will not be possible. A reasonable deadline as in Spain for SII, weekly or monthly at the same time as the filing of CA3, could be retained. This is what some organisations and actors recommend.”

What is the current role of Chorus Pro in the VAT system and what will be its role under the new e-invoicing regime? Is Chorus Pro Peppol based on Peppol and which e-invoicing standard will be used?

“With the aim of preserving the use of current invoice exchange solutions, the Chorus Pro platform (which has already been tested with a sample of companies for B2B flows from January to June 2020) will most certainly be retained as the relevant tool through which all data from exchanges between companies will transit for transmission to the DGFiP’s IS.”

“In practice, Chorus Pro will play the role of a free public platform that will “centralise” invoicing data to feed the tax authority’s information system. However, the use of the Chorus Pro platform will require certain adaptations (ergonomics, communication, declaration and management functionalities for companies and their users, interfacing methods, capacity to handle large volumes in B2B, etc.).”

“Finally, with regard to the involvement of the interactions of the reform and OPEN PEPPOL or Peppol Service Providers or Access Point, the report is rather silent and this is regrettable, even if during the first months of investigations with the players certain organisations and associations have raised the fact that future developments will have to focus on that of a solution compatible with PEPPOL (a standard which is already a reference at the international level and in particular in Europe).”

“In discussions with my colleague and friend Cyrille Sautereau, CEO of Admarel Conseils and President of the Forum de la Facturation Électronique et des Marchés Publiques (FNFE-MPE), of which PwC France is a member: ‘Chorus Pro is not based on PEPPOL, but has a PEPPOL access point, which makes it reachable from PEPPOL.’

“Finally, the accepted standard is not yet clearly defined. In an effort to remain open to different invoice formats, the report does not seem to make clear which invoice formats will be accepted (XML, CSV, JSON, YAML, EDIFACT, mixed formats such as Factur-X, UBL 2.1. / UNCEFACT CII D16B, already conforms to the European EN16931 format).”

“In any case, as Cyrille Sauterau points out in our recent exchanges: ‘it will probably be one or more syntaxes covered by the EN16931 Standard, including UBL or UNCEFACT/CII, knowing that the recipients who will have the obligation to process them will also have to be able to do so, which implies having a readable version as well. Therefore, the mixed format Factur-X, co-developed by FNFE with Germany, which combines legible representation and compliance with EN16931 in CII should also play an important role’. Point to be followed in the coming months.”[3],[4]

Do you think the timing is realistic for companies to adjust? What do you see with PwC clients? Are they ready for such a change? Did they prepare already?

“As a reminder, as was done for the deployment of the Chorus Pro platform for B2G invoices, the implementation of the e-invoicing obligation will be extended over time:

• From 2023, an obligation to receive e-invoices for all companies.
• A progressive issue bond, depending on the size of the company:
  • 2023 for large companies,
  • 2024 for Intermediate Sized Enterprises (ETIs),
  • 2025 for SMEs and VSEs.”

“2 to 3 years to set up a receiving and issuing obligation for the largest companies may seem a reasonable time frame.”

“However, in practice, most of the players remain concerned today and will be attentive to the official publication of the tax administration’s directives and the specifications for private platforms. This is all the more true since, as mentioned before, there are still many uncertainties about the conditions for implementing the mixed model and that this reform requires time to accompany the change, which may be made difficult due to the complexity of companies’ organisations and their accounting and invoicing IT tools which may be many.”

“If all the measures are taken by the end of 2021 at the latest, the players will be able to prepare their new bonds, bearing in mind that VSE/SMEs will only be concerned in 2025 for the bond issue. Some organisations and companies estimate that a period of 1 to 1.5 years is necessary to implement these obligations from the publication of the texts and directives.”

Do you think there will be consequences for the ‘burden of proof’ once this system is implemented as from then on the tax authority will have all data from the start? For example, we spoke previously with Marie Lamensch (VEG) and she said ‘I am very curious to see the first case in front of a court where someone is saying that ‘actually it is not us that should have known, it’s you’.”

“The question of the burden of proof and, more broadly, of fiscal control will indeed have to be raised.”

“The DGFIP indicates that the reform of Article 153 will certainly lead to some adjustments but should not induce major and profound changes in the current tax regulations, notably on the methods of securing invoices or their control. In particular, a new obligation will be created to make the right to deduct VAT conditional on the payment of an invoice by a customer sent via the platform.”

“However, no comment is made on the guarantees of the ‘post-reform’ taxpayer with regard to the data that will be filed and controlled by the platform. It is difficult to imagine that future texts do not specify the practical consequences in the event of a post-reform check for a company issuing and receiving invoices via the public platform whose invoicing and reporting data have been validated.”

Is the issue of confidentiality tackled well enough in the proposed systems as a lot of taxpayer data is stored in a centralised manner with the tax authority, is this proportional?

“This issue has been addressed. With regard to Article 153 of the Finance Act for 2020, various functional and technical risks could be expressed by the various stakeholders, in particular concerning the sharing or making available of confidential data or data covered by business secrecy with third parties (confidentiality, limits linked to the GDPR regulation).”

“Indeed, the ‘standard’ content of invoices exchanged between companies includes commercial information (name of the supplier, customer, prices of articles or services, discounts, etc.) which naturally constitutes risky data, the confidentiality of which must be ensured vis-à-vis competitors. The content may also include additional commercial or practical information of a personal nature (e.g. identity and contact details of persons to be contacted) or even information covered by business secrecy or the various professional secrets relating to each profession, as highlighted in the report.”

“In addition, the feedback from all stakeholders, and in particular platform operators, at the end of the various consultations confirms their adherence to the mandatory e-invoicing scheme with the coexistence of several platforms that transmit invoices between suppliers and customers.”

“Also, the issue of confidentiality was addressed with regard to the choice of whether or not to cover an architecture with generalized transmission of invoices via the only public centralizing platform (concentration of invoices in a single solution). According to observers, this solution would have financial disadvantages, would risk ‘cutting’ the direct link between suppliers and their customers and would involve problems of confidentiality of the data transmitted.”

“For this reason, the obligations of the different parties (public platform, private platforms, etc.) with regard to sensitive and personal data, especially with regard to GDPR regulation, will have to be carefully discussed.”

VAT fraud is not only a problem in France, it is a big problem in the entire EU. If you could give one piece of advice to the European Commission regarding fighting VAT fraud, what would it be? Also regarding the latest tax package which leans toward a more European approach to real-time reporting for VAT.

“The dual objective of simplifying as much as possible the tax and administrative obligations of players in Europe and at the same time forcefully fighting against VAT fraud is necessarily something difficult to implement. They are two almost antagonistic things.”

“It must be done ‘simply and effectively’, even if the implementation of priority national policies/measures in parallel with European projects is inevitable. As long as they do not contravene the fundamental principles of security and proportionality decreed by the Community authorities, tax policies and means of control belong to each Member State and are more or less coercive depending on the country (the level of VAT fraud is not identical from one State to another, nor is the number of companies to be controlled).”

“I will stay on the idea of a single and unique obligation of VAT e-reporting harmonized at the European level, centralized at a European ‘super platform’ in charge of recovering the data transmitted to the national public platforms. This measure should be accompanied by the abandonment of VAT obligations currently in force to avoid additional administrative burdens. However, this European project, accepted by all, seems quite utopian… and I will certainly not work any more when such a project comes to life.”

What would you say to people to make them just as enthusiastic about VAT as you are?

“I would say, experience the VAT differently than in books. Apply it, transform it and think it through dynamically to the whole business organization.”

We would like to thank Laurent again for their time and for giving his perspective on VAT. The opinions expressed in this article are personal. If you have any questions, suggestions or if you want to be our next interviewee, do not hesitate to contact us via info@summitto.com

[1] For example: (1) Creation since 2014 of a data mining unit for “fraud targeting and request enhancement” in order to increase efficiency in the identification and detection of fraudulent behaviour, mainly VAT. (2) General law against tax fraud of October 2018 to better detect, apprehend and sanction fraud. (3) 2021 package and VAT measures on e-commerce applicable for some since 1 January 2020. (4) Reinforcement of controls on fictitious VAT refund applications. (5) Certification since 2018 of the cash register software. (6) Reinforcement of computerised accounting controls (CFCI/FEC), the main tests of which revolve around VAT. (7) Importance of audits linked to the “Reliable Audit Trail” documentation of invoices (PAF/CEPAF) which are becoming unavoidable. (8) Or for a few months now…article 153 of the Finance Law for 2020 on the generalisation of e-invoicing and e-reporting from 2023.”

[2] Among other things: (1) Certification of private platforms (2) Clearance model (3) Data control (4) Invoice details and data (5) Formats envisaged (6) Fiscal EDI and Electronic Signature (7) Modes of transmission (8) E-reporting (9) Whether or not purchases are taken into account (10) Foreign companies (11) Periodicity of data transmission obligations (12) Pre-filling CA3 (13) Other important elements to be considered: Management and updating of the directory of companies managed by the public platform, modalities of single archiving or not for the parties and impacts on current regulations (advantages/disadvantages), the future of PDF invoices, practical modalities of post-reform tax control (impact on FEC and CFCI obligations: article L 47 A I and II of the LPF), practical management and control of assets/IRR vs. initial invoices), etc.

[3] Nota Bene 1: as a reminder, in France and since 1 January 2020, under the aegis of the 2014-697 order of 26 June 2014 and Directive 2014/55/EU, invoices must be sent through the portal of the public platform Chorus Pro in the context of relations between a taxable person and the public sector. Invoices can be transmitted via 3 main channels: PDF, WebEDI and EDI/API mode.

[4] Nota Bene 2: Factur-X is a Franco-German standard for mixed electronic invoices (PDF for users and XML data for automated processing), the first implementation of the European Semantic Standard EN 16931 published by the European Commission on 16 October 2017. Factur-x is the same standard as ZUGFeRD 2.1 (http://fnfe-mpe.org/factur-x/).