You opened an official letter from the French tax administration, the Direction generale des finances publiques (DGFIP, the French tax authority), and the numbers are brutal: several years of value added tax (VAT, in French taxe sur la valeur ajoutee, TVA) reassessed on your French sales or services, plus a 40 percent or even 80 percent surcharge. Your French customer had applied reverse charge, meaning it self-assessed the VAT instead of you, and now the administration tells you that the reverse charge was wrong, that you were the real person liable, and that your input VAT deduction is lost because invoices are missing or were declared too late. For a foreign company doing business in France, whether through a French subsidiary (a locally incorporated company, usually a SAS, simplified joint-stock company, or a SARL, limited liability company), a branch (succursale, a registered extension without separate legal personality, recorded at the Registre du commerce et des societes, RCS, the French commercial register kept by the greffe, the clerk of the commercial court), or directly from abroad with a French VAT number, this moment decides the next three years of your French margin. This guide explains the two battles every foreign company faces in this situation: first, understanding why the administration requalifies the transaction and denies your deduction; second, replying to the proposition de rectification (the formal notice of reassessment that opens the adversarial phase) within the deadline and contesting the bill from abroad without losing your rights.<\/p>\n
French VAT starts from a simple principle stated in Article 256 of the General Tax Code, L\u00e9gifrance<\/a>: supplies of goods and services for consideration by a taxable person acting as such are subject to VAT. The difficult question for cross-border business is not whether VAT applies but who must pay it to the French Treasury. The default answer is given by Article 283 of the General Tax Code, L\u00e9gifrance<\/a>: VAT must be paid by the person carrying out the taxable transaction, but where services covered by Article 259, paragraph 1 are supplied by a taxable person not established in France, the tax must be paid by the customer. That second sentence is the reverse charge (autoliquidation): the French customer reports the output VAT and deducts it on the same return, so no cash changes hands, and the foreign supplier invoices without French VAT. Your French customers love this mechanism because it is cash-neutral for them, and many foreign suppliers assume it applies automatically as soon as they invoice from abroad. The reassessment letter tells you that this assumption was wrong on your facts, and the leading case on the subject shows exactly how the administration reasons.<\/p>\n On 15 June 2023 the Conseil d’Etat, the supreme administrative court, decided the case of a Luxembourg company that supplied administrative, financial, tax, legal and IT services to its two French subsidiaries between 2012 and 2014 and let the French customers self-assess the VAT under reverse charge (CE, 8th and 3rd chambers combined, 15 June 2023, No. 465719, Conseil d’Etat, 15 June 2023, No. 465719, L\u00e9gifrance<\/a>). After auditing one of the French subsidiaries, the administration took the view that the Luxembourg provider itself was the legal debtor of the VAT and assessed it directly, with an 80 percent surcharge for concealed activity. The Court approved the administration’s logic and stated the rule that now governs every foreign group operating in France: “le redevable de la taxe sur la valeur ajout\u00e9e aff\u00e9rente est le prestataire qui les fournit s’il est lui-m\u00eame \u00e9tabli en France.” In other words, where the place of the services is in France because they are supplied to taxable customers meeting the conditions of Article 259, the VAT debtor is the supplier itself if that supplier is established in France. The Court then defined establishment in concrete terms: “Doit \u00eatre regard\u00e9 comme tel le prestataire qui a en France un \u00e9tablissement stable depuis lequel les prestations sont fournies et qui pr\u00e9sente un degr\u00e9 suffisant de permanence et une structure apte, du point de vue de l’\u00e9quipement humain et technique, \u00e0 rendre possibles, de mani\u00e8re autonome, les prestations de services consid\u00e9r\u00e9es.” A stable establishment (etablissement stable) means a sufficient degree of permanence plus human and technical resources capable of supplying the services independently, and once the services can be attached to such an establishment, the Court added, there is no need to ask whether attachment to the head office would be more rational for tax purposes.<\/p>\n Apply that test to your own situation before answering the administration. The Luxembourg company lost because the facts showed a 12.5 square metre office in Luxembourg that could not accommodate its staff, six employees declared and domiciled in France, four of them also employed by the French subsidiary, and services actually performed from France by two named managers. The tribunal drew the inference that the services were supplied through the French subsidiary as a stable establishment, and the Conseil d’Etat upheld that sovereign assessment of the facts. Foreign founders are often shocked by this because they reasoned in company-law terms: our contract says the supplier is the Luxembourg parent, the invoices say Luxembourg, the money goes to Luxembourg, so French VAT cannot concern us. French VAT law reasons in factual terms: where are the people and the equipment that actually perform the service, and do they sit in France on a durable basis. If your UK or US parent seconds staff to the French subsidiary for months, if the French team negotiates and delivers the consulting while the foreign entity merely invoices, or if your Paris premises host the servers and engineers behind a SaaS product billed from Dublin, the administration will argue that you supplied through a French stable establishment and that reverse charge never applied. The official guidance on business-to-business services between taxable persons on impots.gouv.fr, services between taxable persons<\/a> and the page for non-EU businesses on impots.gouv.fr, VAT for businesses outside the EU<\/a> describe the same dividing line from the administration’s side, so read them against your contracts before drafting any reply.<\/p>\n The surcharge layered on top of the principal is the second shock, and it follows the same factual logic. The Luxembourg company received an 80 percent increase for concealed activity (activite occulte), the heaviest VAT penalty in the French arsenal, defined at Article 1728 of the General Tax Code, L\u00e9gifrance<\/a>: failure to file the required returns on time triggers an 80 percent increase where a concealed activity is discovered. The Conseil d’Etat recalled the test in terms every foreign company should memorize: a taxpayer who filed nothing on time and never registered its activity with a business formalities centre or the commercial court registry is deemed to carry on a concealed activity unless it proves an honest mistake explaining why it filed nothing, and for a taxpayer claiming it complied fully in another State, that excuse is judged on all the circumstances, including the level of taxation there and the information exchange between the two administrations. The killer sentence for reverse-charge planning was this: “l’application d\u00e9lib\u00e9r\u00e9ment erron\u00e9e du r\u00e9gime de l’autoliquidation ne pouvait tenir lieu de d\u00e9claration” (Conseil d’Etat, 15 June 2023, No. 465719, paragraph 11, L\u00e9gifrance<\/a>), meaning a deliberately misapplied reverse charge cannot count as a tax return. Telling the auditor that your French customer declared everything therefore does not save you; in the Court’s eyes you declared nothing. The appeal was dismissed in full: “Le pourvoi de la soci\u00e9t\u00e9 Worldwide Euro Protection est rejet\u00e9.” (Conseil d’Etat, 15 June 2023, No. 465719, operative part, L\u00e9gifrance<\/a>) The lesson is practical rather than theoretical: if the administration can attach your services to French human and technical means, it will assess you directly, deny that the customer’s reverse charge discharges you, and press for the 80 percent rate unless you build a documented mistake defence from day one.<\/p>\n The second half of most reassessment letters hurts just as much: the VAT you paid to French suppliers, the input VAT (TVA deductible) you expected to set against your output VAT, is thrown out. Two different weapons produce that result, and you must identify which one the administration is using because the defence differs. The first weapon is substantive: your invoices do not meet French invoicing rules or you cannot produce them, so no deduction is allowed at all. The second weapon is temporal: your invoices are valid but you claimed the deduction too late, and the right has expired. Both rest on articles you should open on Legifrance before doing anything else: Article 271 of the General Tax Code, L\u00e9gifrance<\/a> sets the principle of the deduction right, Article 286 of the General Tax Code, L\u00e9gifrance<\/a> imposes registration and bookkeeping duties including keeping supporting documents such as purchase invoices, Article 287 of the General Tax Code, L\u00e9gifrance<\/a> requires every VAT debtor identified in France to file the periodic return (the CA3 monthly or quarterly return) showing total and taxable transactions, and Article 289 of the General Tax Code, L\u00e9gifrance<\/a> requires a proper invoice for every supply to another taxable person. If you sell in France without keeping numbered purchase invoices, without a day-by-day sales ledger where required, or with invoices that omit mandatory mentions such as the supplier’s and customer’s VAT numbers, dates, quantities, price and VAT rate, the auditor will deny deduction on substance, and no procedural argument recovers it. Foreign groups fail here more often than they admit, typically because the French subsidiary keeps its accounts on the parent’s ERP in English with invoice PDFs scattered across email threads, and nobody can produce, at the audit meeting in France, the complete chronological file the verificator demands.<\/p>\n The temporal weapon is subtler and was clarified against taxpayers by the Cour de cassation, the supreme civil court, on 1 October 2025 (Cass., Commercial, Financial and Economic Chamber, 1 October 2025, No. 24-14.456, Cour de cassation, 1 October 2025, No. 24-14.456<\/a>). The underlying story is a warning for every foreign liquidator and finance director: a property-dealing company in court-ordered liquidation between 2004 and 2005, closure for extinction of liabilities in January 2015, and a friendly liquidator who asked in January 2016 for refund of a VAT credit on invoices received between 2000 and 2003 but paid by the court-appointed liquidator in 2012. The administration rejected the claim as time-barred, the companies sued the former liquidator for negligence, and the Paris court of appeal held the liquidator liable on the theory that deduction remained available at payment. The Cour de cassation quashed that reasoning and laid down the deadline rule in terms you should quote back to any adviser who tells you deduction can wait: “Il r\u00e9sulte de la combinaison de ces textes que le client d’un assujetti, lorsque cet assujetti a opt\u00e9 pour le paiement de la TVA d’apr\u00e8s les d\u00e9bits, doit d\u00e9clarer la TVA d\u00e9ductible figurant sur les factures dans le mois de leur r\u00e9ception et au plus tard le 31 d\u00e9cembre de la deuxi\u00e8me ann\u00e9e suivante.” Where the supplier opted for VAT on debits (payment on issue rather than on receipt), the customer must declare the deductible VAT shown on the invoices in the month of their receipt and no later than 31 December of the second following year. The sanction is total: “A d\u00e9faut de d\u00e9claration dans ces d\u00e9lais, le cr\u00e9dit de TVA ne peut donner lieu ni \u00e0 imputation ni \u00e0 remboursement.” Miss the window and the credit can neither be set off nor refunded, period. The same saga had already produced an earlier cassation on 23 November 2022 sending the case back to a differently composed court (Cass., Commercial Chamber, 23 November 2022, No. 21-13.613, Cour de cassation, 23 November 2022, No. 21-13.613<\/a>), which shows how hard courts fight over these limitation points and why you must diary them from the first French invoice rather than reconstructing them during the audit.<\/p>\n Translate those two rulings into an action checklist for your French file. First, separate every disputed input item into the two piles: missing or non-compliant invoice versus valid invoice claimed late. For the first pile, chase the originals now: ask French suppliers for duplicate conforming invoices, verify your VAT number appears correctly, and check that the national norms on mandatory mentions are met, because the auditor will test a sample and extrapolate. Second, rebuild the declaration chronology for the second pile: for each invoice, note the month of receipt, the return on which the VAT was declared, and whether the 31 December second-year cut-off was respected. If your French company files monthly CA3 returns through its expert-comptable (chartered accountant) on the impots.gouv.fr professional portal, export the full filing history; if it files quarterly because annual VAT payable is below 4,000 euros, confirm the quarter mapping. Third, remember that paying late never reopens the deduction window: the 2025 ruling rejects the intuitive idea that VAT becomes deductible when you finally pay an old invoice, at least under the debits option, and the administration will apply the same strictness to your file. Fourth, connect this to your pillar obligations as a foreign founder: our full setup guide for setting up a company in France, from bank account and Kbis to VAT and first hire<\/a> explains how the Kbis (the official company identity certificate issued by the greffe after registration, proving your SIREN company number and legal existence), the VAT number, and the first returns fit together, and gaps in that chain are exactly what the auditor exploits two years later. A reassessment that looks like a pure VAT dispute is very often, underneath, a bookkeeping and filing-calendar dispute, and it is won or lost on documents you can still assemble before replying.<\/p>\n Everything now depends on one document and one deadline. After a verification de comptabilite (on-site audit of your accounts) or a controle sur pieces (documentary audit from the office), the administration must send you a proposition de rectification before any assessment becomes final. Article L. 57 of the Tax Procedures Book, L\u00e9gifrance<\/a> states the guarantee in one sentence you should keep in front of you while drafting: “L’administration adresse au contribuable une proposition de rectification qui doit \u00eatre motiv\u00e9e de mani\u00e8re \u00e0 lui permettre de formuler ses observations ou de faire conna\u00eetre son acceptation.” The notice must be reasoned so that you can respond or accept with full knowledge. In practice the letter states the legal basis, the amounts year by year, the penalties envisaged, and the time to reply: 30 days from receipt, extendable by a further 30 days on your request made before the first period expires, a mechanism linked to Article L. 11 of the Tax Procedures Book, L\u00e9gifrance<\/a>. For a foreign company this deadline is the most dangerous moment of the whole procedure, because the letter arrives at the French registered office (siege social), is sometimes forwarded late by the domiciliation agent, and the Paris auditor counts calendar days while your board meets quarterly in London or New York. Treat the proposition as a court deadline from the day it is issued: confirm receipt in France within 48 hours, request the 30-day extension in writing immediately to buy drafting time, and freeze all contact with the auditor through a single representative, ideally French counsel with a mandat (power of attorney) plus your expert-comptable for figures.<\/p>\n Your written observations (observations du contribuable) are not a protest letter; they are the exhibit bundle the administrative court will read two years later when judging whether the assessment was justified. Structure them as a lawyer would: for each reassessed year, answer the legal qualification first, then the figures. On qualification, attack the stable-establishment finding with evidence, not assertions. If the administration claims your foreign parent supplied through French means, produce the counter-documents: employment contracts showing where each employee is hired and pays social contributions, lease plans proving the size and use of each office, time sheets and travel records showing who performed what from which country, server and tooling logs for digital services, and the intra-group service agreements with transfer-pricing appendices. Explain, paragraph by paragraph, why the human and technical resources that delivered each service sat outside France, distinguishing your French subsidiary’s own activity as customer from any alleged role as your establishment. Where the administration instead claims your French customer wrongly self-assessed, show the customer’s valid French VAT number at the invoice date, the correct invoice wording referencing reverse charge, and the customer’s returns reporting the operation, while conceding nothing on your own establishment. On figures, rebuild each VAT return line: output VAT per invoice, input VAT per receipt month, corrected CA3 schedules, and a reconciliation with the general ledger. The service-public guide on disputes with the tax administration and friendly appeal, service-public.fr<\/a> reminds businesses that hierarchical appeal to the auditor’s superior and mediation remain available during the audit phase, and you should use them in parallel: ask for a meeting with the chef de brigade or the interlocuteur departemental while your written observations are pending, because many factual misunderstandings about foreign groups, such as confusing seconded staff with local establishment, can be resolved at that level before the assessment hardens.<\/p>\n Mind the two traps that destroy foreign defences at this stage. The first is silence or a one-page denial: if you reply that you disagree without documents, the administration confirms the assessment (confirmation des rectifications), issues the collection notice (avis de mise en recouvrement), and you move to litigation carrying the burden of proof on points you could have evidenced early. The second is paying without understanding: accepting the proposition ends the dispute on the principal but creates a history that auditors cite in later years, while formally contesting preserves negotiation leverage for a settlement (transaction fiscale) on penalties. You can also ask for a payment deferral (sursis de paiement) once the bill is issued and you file a formal claim, so that enforcement is suspended while the dispute runs, provided you meet the guarantee conditions the collection office sets. Diary the limitation periods the other way round as well: Article L. 169 of the Tax Procedures Book, L\u00e9gifrance<\/a> gives the administration until the end of the third year following the year for which tax is due to recover income and corporation tax, with VAT governed by parallel reprise rules and extended to ten years for concealed activity, which is precisely why the 80 percent cases always allege concealment. Your reply should therefore contest both the tax and the penalty qualification separately: even if some VAT is due, an 80 percent concealed-activity increase requires findings of unfiled returns plus unregistered activity with no credible mistake, and the Worldwide Euro Protection criteria on mistake, foreign compliance, and information exchange give you paragraphs to plead. Close your observations with explicit numbered requests: discharge of specific amounts, reduction of the surcharge from 80 to 40 or zero percent, and referral to the departmental committee where available, so that the administration must answer each point in its response, and any unanswered point becomes your ground of appeal.<\/p>\n When the administration confirms the reassessment despite your observations, the dispute moves to formal contestation, and a foreign company can run the entire sequence from abroad if it respects the order of steps. First comes the administrative claim (reclamation contentieuse) to the tax office that issued the collection notice, which you should file as soon as the notice arrives, setting out again the legal grounds and attaching the exhibits already served, plus any new expert report. If the claim is rejected expressly or implicitly after six months of silence, you appeal to the tribunal administratif (TA, the first-instance administrative court) in whose district the tax was assessed, typically Paris, Montreuil or the court of your French registered office, within two months of the rejection. The TA judges both the facts and the law, orders expert assessments where accounting questions dominate, and can discharge the tax, reduce penalties, or annul the procedure for defective reasoning of the proposition. Appeal then lies to the cour administrative d’appel (CAA, administrative court of appeal) and finally to the Conseil d’Etat on points of law, the same court that decided Worldwide Euro Protection. Throughout, representation by a French avocat is not strictly mandatory before the TA but is practically indispensable for a foreign party: pleadings must be in French, deadlines are computed in French procedural time, and hearings involve a rapporteur public whose conclusions you must answer orally. Budget realistically: first-instance VAT cases with factual establishment disputes typically run 18 to 30 months, and you should provision the principal in your accounts while fighting the penalties hardest, since courts annul surcharges more readily than they rewrite the VAT qualification.<\/p>\n Penalties are where well-prepared foreign companies recover most value, so plead them as a separate case within the case. The scale runs from late-filing interest (interet de retard, currently 0.2 percent per month) through Article 1729 of the General Tax Code, L\u00e9gifrance<\/a> increases of 40 percent for deliberate failure and 80 percent for abuse of law or fraud, up to the Article 1728 80 percent concealed-activity rate applied in Worldwide Euro Protection. Challenge each element distinctly: deliberate failure requires proof you knowingly understated tax, not merely that you applied the wrong VAT rule within a complex cross-border group advised by foreign accountants; concealed activity requires both unfiled French returns and unregistered activity with no credible mistake, so produce your foreign filings, your registration attempts at the former centre de formalites des entreprises or the current Guichet unique (the single online company registration portal run via the INPI, the French intellectual property and business-registry institute), your BODACC publications (Bulletin officiel des annonces civiles et commerciales, the official gazette where company registrations and insolvency events are published), and correspondence showing you sought French VAT advice. Argue subsidiarity explicitly: even if the Court holds you established in France, the mistake was excusable given contradictory rescrits (formal tax rulings), the customer’s own reverse-charge reporting, and full declaration of the same margin abroad, which excludes concealment and should cap any increase at 40 percent or zero with interest only. Attach a penalty memorandum with a year-by-year table so the judge can sever penalties from principal without reworking your whole file, and mention the BOFiP doctrine (Bulletin officiel des finances publiques, the administration’s published and opposable interpretation) where it supports a milder reading, since the administration cannot depart from its own published doctrine to your detriment.<\/p>\n Parallel to litigation, rebuild the compliant structure so the next audit finds nothing. If the dispute revealed a genuine French stable establishment, register it properly: file the establishment with the Guichet unique, obtain the SIRET establishment number linked to your SIREN, update the RCS entry through the greffe, charge French VAT on future invoices, file monthly CA3 returns, and align your contracts so the French establishment is named as supplier with its own resources. If instead you confirm that reverse charge was correct, harden it: verify every French customer’s VAT number on the European VIES database at each invoice date and archive the screenshot, print the reverse-charge wording on invoices, reconcile customer-reported intra-EU acquisitions with your sales lists, and prepare for French electronic invoicing (facturation electronique), mandatory in stages from 2026, which will let the administration cross-check your invoices automatically. Review your intra-group flows against the transfer-pricing file so management fees and service charges match the people actually working in each country, because the same staff-location evidence decides both VAT establishment and profit attribution. Our companion analyses of French corporate filings, from the VAT registration delays that block first invoicing<\/a> to electronic reporting duties, give you the filing calendar to pin above your finance team’s desks. A foreign company that litigates the past while visibly complying for the future negotiates better settlements, earns more sympathetic hearings, and, win or lose on the reassessed years, stops the dispute from repeating every three years with heavier penalties each time.<\/p>\n A French VAT reassessment against a foreign company is never just a tax bill; it is the administration’s factual verdict on how your group actually works in France. If it can attach your services to French offices, French employees and French equipment, it will name you the VAT debtor instead of your customer, deny that the customer’s reverse charge discharges you, throw out input VAT claimed without compliant invoices or after the second-year cut-off, and press for an 80 percent concealed-activity surcharge. The Conseil d’Etat’s Worldwide Euro Protection ruling and the Cour de cassation’s October 2025 deduction-deadline ruling give you the exact tests to apply to your own file before replying, and Article L. 57 gives you the procedural weapon that matters most: a reasoned proposition you must answer point by point within 30 days, extended on request, with documents rather than denials. Answer the qualification with staff, lease, time-sheet and server evidence; rebuild every return line by invoice month; contest the penalty qualification separately from the principal; then carry the dispute through claim, tribunal and appeal from abroad with French counsel while registering or hardening the correct VAT position for the future. Handled that way, a redressement TVA becomes a manageable dispute about evidence and procedure rather than an existential threat to your French business, and the compliant structure you build during the fight is what protects your margins in every later year.<\/p>\n Our firm advises foreign companies and overseas founders on French VAT reassessments, reverse-charge disputes and penalty reductions every week. You receive a telephone consultation within 48 hours with a lawyer of the firm, with a clear answer on your proposition de rectification, your reply deadline and your chances of discharging the assessment. Call +33 6 46 60 58 22<\/a> or write through our contact page<\/a>, and keep the reassessment letter, your contracts, your invoices and your VAT returns at hand for the call.<\/p>\n","protected":false},"excerpt":{"rendered":" Your French customer applied reverse charge and now the tax office assesses you directly with penalties. This English guide explains why VAT is requalified, why input deduction is denied, and how to answer the proposition de rectification and contest from abroad.<\/p>\n","protected":false},"author":251031309,"featured_media":16480,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_kj_source_type":"","_kj_official_id":"","_kj_official_url":"","_kj_judilibre_id":"","_kj_jur":"","_kj_lieu":"","_kj_chambre":"","_kj_rg":"","_kj_date":"","activitypub_content_warning":"","activitypub_content_visibility":"","activitypub_max_image_attachments":4,"activitypub_interaction_policy_quote":"anyone","activitypub_status":"federated","footnotes":""},"categories":[80314,80313],"tags":[],"class_list":["post-2120023","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-decryptage","category-doing-business-in-france"],"yoast_head":"\nB. Why Is Your Input VAT Deduction Rejected for Missing Invoices or Late Declarations?<\/h3>\n
II. How Does a Foreign Company Answer the Reassessment and Contest the Bill Without Moving to France?<\/h2>\n
A. How Do You Reply to the Proposition de Rectification Within 30 Days and Survive the Audit?<\/h3>\n
B. How Do You Challenge the Assessment in Court, Cut the Penalties and Rebuild a Compliant Position?<\/h3>\n
Conclusion<\/h2>\n
Need a quick opinion on your case.<\/h2>\n