Property VAT lawyer in Paris: margin, option, self-supply, adjustment.

Property VAT does not depend on the nature of the property alone, but on the seller and the transaction. Article 257 of the French General Tax Code (Code général des impôts) subjects to the tax the operations contributing to the production or supply of buildings, where the seller acts as a taxable person. It classifies as a building plot land on which buildings may be authorised by a planning document, and as a new building one that was not completed more than five years ago, including after works that restored it to a new state. The sale of a building plot or a new building by a taxable person is therefore taxable. Conversely, 5 of article 261 exempts supplies of land that is not a building plot and of buildings completed more than five years ago, unless the seller opts for the tax. A private individual who sells their residence or an asset of their private estate is not, in principle, a taxable person, but the administrative court may find otherwise where they have taken active marketing steps. The first task is therefore to establish the date of completion, the classification of the property on the day of the sale and the status of the seller, before discussing the base and the rate.

Article 268 of the French General Tax Code provides a special base for the supply of a building plot, or of an older building sold under the option, where the seller's acquisition did not give rise to a right of deduction. The base is then the difference between, on the one hand, the stated price plus the charges added to it and, on the other, the sums paid by the seller to acquire the property, or the nominal value of the securities received in exchange for a contribution. Servicing, study or demolition costs do not appear in that text among the sums deducted: only the acquisition counts. The tax itself does not form part of the base (article 267): if the price is stated inclusive of VAT, the margin excluding VAT is obtained by dividing the difference by one plus the applicable rate. The calculation therefore requires reconstructing the actual acquisition price, checking that the purchase did not give rise to a right of deduction and checking that the property resold corresponds to the one acquired. The Council of State (Conseil d'État) reserves this regime for building plots acquired for resale, and refuses the margin scheme for a plot bought with a building on it and then demolished by the buyer-reseller (CE, 27 March 2020, No. 428234, Promialp). Finally, the sale deed must clearly show the price excluding VAT, the margin and the tax, failing which the buyer may lose the possibility of deducting.

Everything depends on what changes between purchase and resale. In the Promialp case, a property dealer had acquired a plot with a house on it, had it demolished and then divided it into building plots. The Council of State held that the special rules of article 268 do not apply to the sale of plots which, when acquired, had the character of built-on land, where the buyer-reseller demolished the building (CE, 27 March 2020, No. 428234, Promialp). The decision is unfavourable to the taxpayer: the tax is due on the total price. The Court of Justice, for its part, accepted that changes such as division into lots or servicing works do not in themselves exclude the margin scheme (CJEU, 30 September 2021, Icade Promotion, C-299/20). In a liability dispute, the Nîmes court of appeal ruled out any fault by the notary, noting that the selling company, a property professional, "could not have been unaware of the change of classification thus brought about by itself" (our translation), the deeds having warned it that the tax authorities require an identical classification at purchase and at resale (CA Nîmes, 1st ch., 26 June 2025, No. 24/00299). Before any demolition or division, both bases, total price and margin, must therefore be calculated and their consequences drawn for the price asked.

In its judgment of 30 September 2021, the Court of Justice of the European Union interpreted article 392 of the VAT Directive, which article 268 transposes (CJEU, 30 September 2021, Icade Promotion, C-299/20). It first held that the margin scheme may apply to building plots whose acquisition was subject to VAT without a right of deduction, or whose acquisition was not subject to VAT although the price paid incorporated tax paid upstream by the original seller. Outside that case, the scheme does not apply to an acquisition outside the scope of the tax or exempt. It then held that the margin is excluded where plots acquired unbuilt became building plots between purchase and resale, but that division into lots or servicing works do not exclude it. For a deed of 2016, the Chambéry court of appeal refused to hold it against the notary that he had not anticipated this judgment, while finding a separate drafting fault (CA Chambéry, 1st ch., 6 October 2026, No. 23/01682). On 1 January 2027, articles L. 231-18 to L. 231-20 of the code on taxes on goods and services (code des impositions sur les biens et services) will take over this regime in the terms of the judgment. The Government has indicated that the current doctrine remains enforceable against the tax authorities under article L. 80 A of the Book of Tax Procedures and that, after it is updated, an acquisition or preliminary agreement predating the update will keep the benefit of it (ministerial reply No. 08332, Senate Official Journal, 1 October 2026, p. 4768). The date and origin of the acquisition therefore become central documents in the file.

The sale of a building completed more than five years ago is exempt under 5 of article 261 of the French General Tax Code, but 5° bis of article 260 allows the seller to opt for the tax. Article 201 quater of Annex II specifies that the option is exercised building by building and must be mentioned in the deed recording the transfer. The value of the option is measured on three points. The first is the adjustment: a seller who has deducted the VAT on the acquisition of, or works on, a capital building must, if the sale remains exempt, repay the twentieths still to run over the twenty-year adjustment period. The second is the buyer: if they are a taxable person and use the building for a taxed activity, they will be able to deduct the tax invoiced; if not, the option increases their cost. The third is the base: total price or margin, depending on the regime of the acquisition. For a property dealer, the Council of State holds that the VAT paid on the purchase of an older building intended for resale is deductible only at the time of resale if the option is then exercised, even if the building was let with VAT in the meantime (CE, 27 November 2020, No. 426091). The decision is unfavourable to the property dealer.

Self-supply restores the neutrality of the tax where a taxable person builds for their own needs a building that they do not use entirely for operations giving rise to a right of deduction. Article 257 of the French General Tax Code treats as a supply for consideration the use by a taxable person, for the needs of their business, of a property constructed within their business, where acquiring it from another taxable person would not give them a full right of deduction. The same article covers self-supply of certain property works and of social housing. For buildings, the base is the total cost price, including the cost of the land or its contribution value (article 266 of the French General Tax Code). Article 269 sets the chargeable event, for a new building, at the time when filing of the declaration of completion with the town hall is required, and article 270 allows the tax to be assessed up to 31 December of the second year following the year of completion, this period being reduced to the last day of the sixth month for the social housing referred to in A and C of II of article 278 sexies. The file is therefore prepared from the construction stage: costs of the land and the works, invoices, date of completion and intended use of each unit.

VAT deducted on a capital building is retained only on conditions. Article 207 of Annex II to the French General Tax Code provides, for buildings, a twenty-year adjustment period. Where the building is transferred without being subject to tax on the total price or on the margin, the seller must repay the tax initially deducted for each year remaining until the end of that period. Conversely, a taxed transfer may open an additional deduction if the initial right of deduction was incomplete. The Council of State applied this rule to a commercial complex sold in 2009, more than five years after its completion: under the texts then in force, the sale was outside the scope of the tax, the relief linked to the transfer of a going concern could not apply and the adjustment was due (CE, 31 May 2022, No. 451379). The decision is unfavourable to the seller. The Paris judicial court, for its part, recorded the payment of €568,922.99 as an adjustment after an exempt sale, and recalled that "a building burdened with VAT is not necessarily the subject of a VAT deduction, the latter being conditional in particular on the activity for which the building is used" (our translation) (Paris Judicial Court, 11 June 2025, No. 23/00329). The calculation therefore requires the statement of past deductions, year by year.

Two distinct mechanisms exist, and they are not to be confused with a simple price clause. The first is tax-based: where the transfer is not taxed and the building is also a capital asset for the buyer, article 207 of Annex II allows the buyer to deduct a fraction of the tax that originally burdened the property, in proportion to the years remaining, on the basis of a certificate issued by the seller. The second is the transfer of a total or partial going concern between taxable persons: article 257 bis of the French General Tax Code then relieves the operation of tax and the beneficiary steps into the seller's position, notably for adjustments. For a sale in 2009, governed by the earlier wording of article 257, the Council of State refused this relief for the transfer of an older building then outside the scope, and upheld the adjustment (CE, 31 May 2022, No. 451379); the relief is therefore not to be presumed and is examined against the text applicable on the date of the sale. There remains the civil question of cost: who, the seller or the buyer, bears the repayment. The Paris court of appeal held the information given by the notaries to be late, noting that "the clause on the VAT adjustment appeared only in the notarial deed of sale, which establishes that the essential information on the tax regime applicable to the sale was given late" (our translation) (CA Paris, pôle 4 ch. 13, 4 October 2022, No. 20/00415).

The wording of the price determines the tax due, the buyer's right of deduction and, in the event of an error, the final burden of the tax. A deed that states a price without specifying whether it is exclusive or inclusive of tax may expose the seller to bearing the tax on the price received, and the buyer to being unable to deduct it. In a sale of land under the margin scheme, the Chambéry court of appeal found a fault by the notary, the deed not specifying whether the agreed price was exclusive or inclusive of tax, and noted that "if the sale deed does mention the arrangements for the seller's discharge for payment of the VAT, it is silent on the buyer's ability to recover the VAT" (our translation) (CA Chambéry, 1st ch., 6 October 2026, No. 23/01682). The court set the loss of the chance to recover the tax at 40%, or €9,500, taking into account the buyer's own delay in claiming. The time limit does matter: article 208 of Annex II allows an omitted deduction to be carried over to returns filed before 31 December of the second year following the omission. The deed must therefore state the price excluding VAT, the base used, the amount of the tax and the regime applied.

The notary must advise the parties on the tax consequences of the deed, and the Court of Cassation specifies that "the notary owes his advice spontaneously before the parties' final commitment" (our translation) (Cass. 1re civ., 28 May 2025, No. 23-18.737). That judgment concerns additional taxes on the capital gain on land that became buildable, not VAT, but it fixes the moment of advice: before the final commitment, and so from the promise where the promise already settles the price and the conditions of the sale. The decisions given on property VAT show contrasting outcomes. The Paris court of appeal found fault in notaries who had not informed the seller in time of the adjustment and of the possibility of opting, without compensating the tax burden for want of a real and serious chance of avoiding it, only non-material loss of €10,000 being compensated (CA Paris, pôle 4 ch. 13, 4 October 2022, No. 20/00415). The Paris judicial court, by contrast, dismissed the claim of a seller who had stated in the deed that no adjustment was due, there being no elements allowing the notaries to doubt that statement (Paris Judicial Court, 11 June 2025, No. 23/00329). The Nîmes court of appeal found a fault in designating the buyer as the person liable for the tax, while holding that the selling company, the person legally liable, "cannot therefore plead any direct loss causally linked to the notary's fault" (our translation) (CA Nîmes, 1st ch., 11 September 2025, No. 24/03314) for the principal amount of the tax. A liability claim therefore does not replace a tax analysis carried out before signing.

It may. The Council of State holds that the supply of building plots by an individual is subject to VAT where it results, not from the mere management of private assets, but from active land-marketing steps, such as servicing works or professional-type marketing means (CE, 9 June 2020, No. 432596). In that case, an owner had sold eighteen plots after servicing works representing more than 40% of the sale price; the court found an economic activity, even though no professional sales means had been used. The decision is unfavourable to the taxpayer. The classification has knock-on consequences: VAT on the price or on the margin, filing obligations, and possible reassessment during the reassessment period. It must be examined before the development permit or the prior declaration is filed, because the scale and cost of the works relative to the sale price, and the way the plots are marketed, are the indicators the court looks at. A limited division, without substantial works or professional-type steps, presents differently, but the boundary depends on the facts of each transaction and the documents that establish them.

VAT and registration duties do not fall before the same court. Article L. 199 of the Book of Tax Procedures (Livre des procédures fiscales) sends to the administrative court the decisions given on claims concerning turnover taxes, and to the judicial court those concerning registration duties and land publicity tax. A single sale can therefore give rise to two separate tax disputes, to which may be added a possible liability claim against a professional. The Court of Cassation recalls that "the judicial courts, seised of a non-tax dispute, have no jurisdiction to interpret administrative laws and acts on turnover taxes, disputes over which fall exclusively within the jurisdiction of the administrative courts" (our translation) (Cass. 1re civ., 1 July 2020, No. 19-17.030). It quashed the judgment which had itself decided the starting point of the five-year period beyond which the sale of a new building is no longer taxable, whereas that question should have been referred to the administrative court, with a stay of proceedings. In an action against the notary or the adviser, a seriously contested VAT question must therefore be identified early, to avoid a quashed judgment and years lost.

Article L. 176 of the Book of Tax Procedures sets, for turnover taxes, a reassessment right that may be exercised until the end of the third year following the year in which the tax became chargeable. The period is extended to ten years in the case of concealed activity, notably where the taxpayer has not filed returns and has not made themselves known. For a sale, the starting point therefore depends on when the tax became chargeable, which article 269 of the French General Tax Code links to the supply or, for a self-supply, to its own events. The adjustment in twentieths follows its own logic: it arises from the event that triggers it, a non-taxed transfer or a change of use, and article 207 of Annex II sets for annual adjustments a deadline of 25 April of the following year. A private individual reclassified as a land developer may face the ten-year period if the tax authorities show a concealed activity. The first check concerns the dates: deed, completion, returns filed and receipt of the notice of proposed reassessment.

A taxable buyer who undertakes in the deed to carry out, within four years, the works leading to a new building is exempt from land publicity tax or registration duties, under article 1594-0 G of the French General Tax Code. The Court of Cassation recalls that "This exemption is subject to the condition that the buyer shows, on expiry of the four-year period, that the works have been carried out" (our translation) (Cass. com., 7 May 2025, No. 24-11.772). In that case, it quashed the judgment which had upheld the exemption without examining whether the sub-purchaser who completed the construction was itself a taxable person. The decision is favourable to the tax authorities. In another case, the Court approved the withdrawal of the exemption for plots resold to a company that had not taken over the undertaking and to private individuals who were not taxable persons (Cass. com., 28 May 2025, No. 24-13.572). The four-year period may nevertheless be extended each year at the buyer's request, silence for two months amounting to acceptance (IV of article 1594-0 G). This registration-duties litigation falls within the jurisdiction of the judicial court. Before any resale of land acquired under an undertaking, the status of the buyer, the express taking over of the undertaking in the deed and the time remaining must be checked.