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VAT option for the taxation of rents

the Conseil d’Etat overturns the rules of the game


The rental of unfurnished premises for professional use is in principle an exempt transaction but, in France, the lessor has the option to opt for the taxation of rents in accordance with the option offered by the VAT Directive to Member States (FTC, Art. 260 2° and Ann. II. Art. 193 transposing the provisions of Article 137 of the VAT Directive).

By a decision of 9 September 2020 (Conseil d’Etat, 9 September. 2020, no. 439143, SCI Emo), the Conseil d’Etat (French supreme Court) considers that if the option can be general and  cover all the premises concerned in a single building, the overall nature of the option cannot be compulsory for the lessor.

Thus, according to the Supreme Court, an option exercised to submit the rental of some of the premises of a single building to VAT does not have the effect of subjecting the rental of the other premises to this tax if the lessor decides so.

According to the Conseil d’Etat, this reading of the provisions of Article 193 of Annexe II of the French Tax Code, which sets out the methods for exercising the option, results from an interpretation in accordance with the provisions of the VAT Directive which does not give Member States the ability to subject to conditions or restrict in any way the exemptions provided for in the Directive, but simply gives them the option to open, to a more or less broad extent, to the beneficiaries of these exemptions, the possibility of opting for the tax themselves, if they consider it to be appropriate.

This decision contradicts the indications given by the  French tax authorities ‘guidelines that the option necessarily covers all the premises of a building for which the option is possible (BOI-TVA-CHAMP-50-10 no. 120).
It opens up flexibility and important opportunities we invite you to explore by contacting our VAT teams.

Conseil d’Etat, 9 September. 2020, no. 439143, SCI Emo

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