Financial allocation

A long-term care establishment (EHPAD) was subject to VAT reassessments on the ground that the general administration, functioning and buildings maintenance costs could only be deducted in accordance with the prorata.

Based on ECJ case law “AB SKF”, the Conseil d’Etat enunciates that the existence of a direct and immediate link implies, both for expenses which may be allocated and for overhead costs, that the upstream supplies costs are respectively incorporated in the price of the particular downstream operations or in the price of goods or services provided by the taxable person as part of its business activities. The Conseil d’Etat also considers that the VAT related to the expenses used both for taxable and exempt operations may be fully recovered, in the situation where the company is required to pass on the totality of the expenses costs solely into the price of the taxable operations.

Therefore, the financial allocation prevails over the functional allocation.

We consider at this point that the solution identified by the Conseil d’Etat must be confined to the EHPAD’s case, that is where the applicable regulation (here, the Social action and families Code) compels to allocate these costs to determined taxable amounts.

Michel Guichard

Michel Guichard, Partner, leads the Indirect Tax activity. With more than 30 years’ experience in International and French Tax law, he advises his clients on indirect tax matters. Michel is […]

Odile Courjon

Odile Courjon, Partner, has developed a strong expertise in indirect tax issues (VAT, wage taxes, excise taxes, export control and customs) in France and overseas. She advises her clients in […]

Bertrand Jeannin

Bertrand Jeannin, Partner, supplies strategic and technical advice to French and foreign multinational groups in all aspects of their VAT and customs policies. Major focuses of Bertrand’s input involve the […]

William Stemmer

William Stemmer, Partner, has more than 15 years’ experience in Indirect Tax matters. William particularly specializes in the real estate and financial sectors. William is a lecturer at the University […]