Of the coexistence of the VAT Tax Representation with the PAS Tax Representation

Foreign companies employing staff working on the French territory (notably in the context of international assignments) have had to adapt during the last semester to the implementation of the new withholding tax on income tax (PAS). ).

PAS does indeed require foreign companies not established in France but paying remuneration to employees based in France:

• That they think their strategy of deployment of this reform in view of their overall tax situation;

• That they carry out the preliminary administrative formalities allowing them to fulfill their declarative and payment obligations;

• Adapt their IT systems, including for international payments (both SEPA and non-SEPA countries), so that they can meet their new obligations in practice.

Foreign companies falling within the scope of the SAP Act may send personnel to France from different legal entities of the same group and / or from different countries. Given their specific characteristics, they will have to define an effective strategy that will allow them both to comply with the regulations and to control their costs.

Non-established foreign companies that pay employees based in France must make themselves known and register with the tax authorities in France. Without this preliminary formality and the obtaining of a SIRET number, they will not be able effectively to fulfill the obligations incumbent on them since January 1st, 2019 with regard to the withholding of the tax on the income of their employees. In practice, the registration process takes several weeks (6 to 8), the processing time by the tax authorities being a little longer than normal in 2019, given the number of applications for registration.

These foreign companies must seriously address the issue in order to meet their obligations. In the first place, adjustments to the information and payroll systems as well as the allocation of dedicated resources are to be anticipated … even if part of the task will necessarily – in their case – be outsourced : the provisions of Article 1671 -1 of the French General Tax Code (CGI) require them to appoint a tax representative for this purpose.

As an indication, in 2015 (source INSEE), 28,100 foreign companies employed nearly 1.8 million employees in France.

In addition, a number of these foreign and non EU companies that did not have any income tax liability in France so far, had -before 2019- a VAT registration either because of reporting obligations or because of the carrying out of taxable transactions in France for which they were liable for this VAT. These companies were required in this case to appoint a tax representative VAT (ART 289 A of the CGI) who – subject to his accreditation -had to proceed with  the registration of the foreign company with his own local tax center.

However, pursuant to the combined provisions of the new Articles 1671-1 and 302 of the CGI on the one hand and 111 quinquies of Appendix III to the CGI on the other hand, all tax representations are, in such a case of the cumulative VAT and PAS obligation -centralized for their management at the tax center of non-residents of the DINR (Non-Residents Tax Directorate) located in Noisy le Grand.

VAT tax representation tax records are automatically (as soon as the foreign entity is registered for the PAS[1] (with its SIREN number assigned for VAT tax representation at the origin) transferred from the local tax center of the tax representative to DINR at Noisy le Grand, without any demand to be made by the tax representative at his local agency.

Despite the fact that his former VAT accreditation remains valid, the fiscal representative will nevertheless have to apply for his “PAS”  accreditation with the DINR.

If we understand the approach of the tax administration to reinforce the controls by centralizing the files (with a probable temptation of controls to demonstrate the existence of permanent establishments), one is entitled to fear a deterioration of the quality of communication between the users (foreign companies and their tax representatives) and the administration as the communication with the DINR is long-term-deemed difficult to reach because of its congestion with regard to the ratio of workload / number of officers of this agency.

Finally, the VAT accounting audits of a US company whose tax representative is , for example, based in Toulouse are no longer conducted by the inspectors of the SIE  tax agency of Toulouse but by the agents of the DINR  based in Paris suburbs (entailing substantial costs of control of travel and accommodation) .

Everything suggests that these checks will be done more and more based on transmitted documents and in a dematerialized digital way …

Paris, March 18th 2019

Bertrand Rager

[1] Via the on-line site dedicated to filing social returns: Net-entreprises.fr