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You may call it a coffee house discussion when I met Mr. Nathan Lucas at Paris international airport where I had to wait for my connecting flight to New Delhi and came to know that he was a tax consultant from France. He enquired about Indian GST and wanted me to read the comprised treatise on VAT in France, titled “Overview of the French Tax System Legislation in force as of 31 July 2015”, pages 44-49. Yes, after reaching India, I did read the same. This article on value added tax, similar to our GST is totally based on this publication. A well written document, it speaks volumes about French Tax System which has been in vogue since 1789, enacted basically to provide facilities to poor by taxing one who could afford. Let us look at VAT in France.

VAT is a general consumption tax levied on all goods supplied and services provided in France

The areas covered under VAT in France includes continental France, Corsica, the Principality of Monaco, territorial waters, the continental shelf and the départements of Guadeloupe, Martinique and La Réunion. However, the three overseas départements are deemed export territories with regard to metropolitan France, in the same way as third countries.

Supplies of tangible movable goods are deemed to be made in France where the good is situated in France:

  • at the time of shipment or transport by the seller or the buyer or by another party on their behalf to the buyer
  • on assembly or installation by the seller or on the seller’s behalf
  • when it is made available to the buyer, if it is not shipped or transported
  • at the time of departure of a transport, the place of arrival of which is on the territory of another Member State of the European Community, in cases where delivery, during such transport, is made on board a boat, an aircraft or a train

The place in France from which the customer operates is the place where tax is made on the customer. However, in some cases, the position is different. They are as under:

  • Places where services are provided, example, catering, cultural or sporting facilities.
  • Places where the action takes place, example, accommodation, work on property
  • Places where the transport facility is provided

It is obvious from above that the tax will be charged from the places quoted above.

Vat is not applicable in foreign trade transactions (exports of tangible goods and similar supplies, provision of services relating to international trade in goods or transactions relating to ships and aircraft, intra-Community supplies and similar transactions).

 However, taxpayers who carry out such transactions are entitled to deduct the VAT they have paid on the purchase of goods and services used in such transactions.

Naturally VAT is determined by the type of transactions or services provided. It is also known that public authorities enforcing law are not bound by VAT.

Some of the exemptions to VAT are given below:

  • Teaching
  • medical and paramedical activities and hospital care costs
  • insurance and reinsurance and the provision of related services
  • some banking operations (the granting and negotiation of credit, the grantor’s management of credit, the negotiation and assumption of commitments, guarantees and other forms of security interest, the management of credit guarantees by the grantor of the credit, etc.)

VAT is finally borne by the end-user since it is included in the sale price of products or services.  Each intermediary (manufacturer, wholesaler, retailer, etc.) collects the tax provided for by law from the customer and pays it on to his local tax office, minus the VAT on inputs paid to his own supplier.  VAT is a tax on value added, i.e. the value added to the product or service at each stage of production or marketing, such that at the end of the economic chain through which the good or service reaches the buyer, whatever its length, the overall tax burden corresponds to the tax calculated on the final sale price to the consumer.


VAT is calculated by applying a proportional rate to the base amount of the transaction (free of VAT), whatever that amount may be.

The tax system quoted at the beginning clearly explains “Tax base” in the following paras which have been directly quoted from the publication from French tax authorities.


For the supply of goods, the provision of services and acquisitions within the EU, the tax base consists of all the sums, valuables, goods or services received or to be received by the supplier or service provider in return for them from the buyer, the customer or a third party, including subsidies directly linked to the price of such transactions.

Accordingly, in addition to the agreed price, the tax base includes all taxes, duties and levies of any kind except VAT itself and all incidental expenses.  Such expenses include transport, insurance, packaging, etc.

Conversely, the taxable price does not include price reductions (cash discounts, rebates, etc. granted directly to the customer) or amounts refunded to intermediaries who incur expenses on their principals’ behalf, insofar as the intermediaries are accountable to their principals, enter such expenses in suspense accounts in their books and justify the nature or exact amount of such outlays to the tax authorities.

The tax base for imports is the value defined by customs law in accordance with the prevailing EU rules. As with domestic goods and services, however, the tax base must include duties, taxes and levies, excluding discounts, rebates and other reductions, plus incidental expenses (commission, packaging, transport and insurance) to the destination point and expenses arising from transport to another destination point within the EU, if known when the taxable event occurs.”

A lot of discussion takes place in our country about myriad small business men who may be affected by GST or whether they are prepared for the eventual implementation of GST from July 1, 2017. Then about France, the situation runs as under:

If the turnover does not exceed during the calendar year, as per the details given below, they do not come under VAT:

  • €82,200 excluding VAT for supplies of goods, sales of food and drink to be consumed on the premises or accommodation services (€90,300 where turnover in the year before that did not exceed €82,200)
  • €32,900 excluding VAT for other services (€34,900 where turnover in the year before that did not exceed €32,900)

How does one calculate VAT and whether various rates are available for various types of goods and services as we hear every day in India? (For clarity and clear understanding, I have used the texts directly from French tax authority’s publication)


In order to determine how much they should pay, liable persons deduct VAT paid on the purchase of goods and services used to perform the transactions liable to VAT from their taxable turnover. A. CALCULATING GROSS VAT

The amount of gross VAT is calculated by multiplying the net amount of the sale or provision of service (i.e. the amount excluding VAT) by the rate applicable to the transaction concerned.

The four rates are:

 The standard rate, which has been 20% since 1 January 2014. The standard rate applies to all transactions not expressly subject to another rate;

 The reduced rate of 10% which came into effect on 1 January 2014 applies to the majority of goods and services which were previously subject to the 7% rate. It covers mainly passenger transport, certain shows, games and entertainment, medicinal products not reimbursed by the social security, accommodation in hotels, furnished apartments or classified campsites, sales of food and drink for consumption on the premises, including canteens (except school canteens), unprocessed agricultural, fishery and poultry products not destined for human consumption, products for use in organic agriculture, and new middle-income social housing.

The 10% rate is also applied to improvements, conversions and maintenance work on residential premises more than two years old, except for the portion corresponding to the supply of certain large items of equipment.

 The reduced rate of 5.5% applies mainly to basic necessities and certain cultural products and services, in particular: − water and non-alcoholic drinks and products for human consumption with the exception of takeaway sales of products for immediate consumption which are taxed at 10% − special apparatus and equipment for disabled persons, lifts and similar equipment designed for disabled persons that comply with specific characteristics − contracts for the delivery of low voltage electricity, heating and fuel gas distributed via grids, and heating supplies when at least 50% is generated from renewable energy sources − accommodation and food in retirement homes and residences for disabled persons − books via any type of medium, including downloaded, and live shows (with the exception of shows given in establishments where consumption during the show is commonplace) − cinema tickets and tickets for films shown during screenings of a non-commercial  nature or at cinema festivals − deliveries of works of art by the artist or successor(s)47, imports and certain intra-community acquisitions of works of art, collectable items or antiques − energy renovations of residential premises completed more than two years ago and related work − delivery or construction of social housing and certain social housing renovations and related work − entry fees received by organisers of sporting events48

 A specific 2.1% rate charged in particular on press publications and medical drugs reimbursed by social security. NB: Special rates apply in the overseas départements (Guadeloupe, Martinique, La Réunion) and in Corsica. B.     OFFSETTING THE TAX ON INPUTS

Except where expressly provided otherwise (e.g. expenditure on accommodation, passenger transport, etc.), VAT invoiced to liable persons by their suppliers on acquired goods and services (purchases, overheads, capital expenditure) used to perform transactions liable to VAT or exempt from VAT but giving entitlement to a deduction (foreign trade transactions) is deducted from gross VAT.

Taxpayers determine the total amount of VAT to be paid themselves.

47 As of 1 January 2015 (Article 22, 2015 Budget Act No. 2014-1654 of 29 December 2014). 48 As of 1 January 2015 (Article 21, 2015 Budget Act No. 2014-1654 of 29 December 2014).

If the difference between gross tax and input tax is negative, liable persons will generally offset the surplus against their future tax liability, though they may ask for a refund under certain conditions.

Liable persons based in other countries may under certain conditions obtain a refund of VAT charged on goods purchased or imported and services provided in France under the procedure provided for in Directive 2008/9/EC of 12 February 2008 (taxable persons established in an EU Member State) or the Thirteenth Council Directive 86/560/EEC of 17 November 1986 (taxable persons not established in an EU Member State).”

It is true that any tax student of professional in any field like law, taxation, accounting etc. may appreciate the above paras but for the simple understanding of any average reader, I have provided the following additional information:

  • VAT-20% to all rates not subjected to other rates
  • VAT-10% in case of passenger transport, certain shows, games and entertainment, medicinal products not reimbursed by social security administration, hotel accommodation, furnished accommodation, sale of food/drinks for consumption in the premises and new middle-income social housing
  • VAT-5.5% to basic necessities and certain cultural products and services.

What are the obligations under VAT?

  • reporting the existence, identification or discontinuation of an activity
  • keeping itemized accounts supported by vouchers or a special ledger
  • issuing invoices showing the price excluding VAT, the rate, the amount of VAT and the VAT identification number of the seller or service provider and, for certain intra-Community transactions, that of the buyer or customer
  • filing monthly or quarterly turnover returns, depending on the annual amount of tax payable
  • filing European Sales Lists for goods and services for certain intra-Community transactions for statistical and tax purposes
  • voluntarily paying the tax to the Business tax service on submitting the turnover return or in instalments paid in advance

These obligations are reduced for liable persons exempt from VAT.

In 2013, VAT yielded €136.3 billion. In 2014 and 2015, it is estimated to yield €137.8 billion and €142.6 billion respectively. This will indicate the benefits India would gain by implementing GST with all the pains it may entail while implementing the scheme.


Indians are accustomed to arguments, sometimes, even to the extent of unnecessary delays defeating the purpose for which the schemes are proposed. Luckily, GST has shown a great way in which political will has yielded to historic tax reforms that would usher in new economic era from July1, 2017. To enforce this view, I therefore, did some research to go back to the experience of France which has successfully planned, and executed VAT which has yielded billions of euros as economic benefits.

 This clearly indicates the future that shall emerge for India – Unimaginable economic benefits to uplift its millions of poor.



– “OVERVIEW OF THE FRENCH TAX SYSTEM – Legislation in force as of 31 July 2015”

PUBLIC FINANCES DIRECTORATE GENERAL TAX POLICY DIRECTORATE – Bureau A – Section 4 (Government of France) – This 89-page publication  is available in public domain.

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April 2024