Cabinet Beau de Loménie
Patent licenses, trademark licenses, designs licenses and copyright licenses are considered to constitute the provision of services and are therefore subjected to VAT in France, insofar as the provision of services is considered to be performed in this country.
The place of provision of services, which is susceptible to lead to liability to this tax, is often difficult to pinpoint and derives from Articles 259 onwards of The General Tax Code (GTC). The Administrative Supreme Court (Conseil d’Etat) has considered again how these rules should be applied, in a decision of October 9th 2015 (C.E., litigation division, n° 371794, 9 Oct. 2015).
GTC Article 259, at the time (before 2010) considered in the judgment, specified the general rule according to which « the place of delivery of services is reputed to be in France if the provider has the headquarters of its activity, a fixed establishment from which the service is provided, or their domicile or habitual residence in France ».
Nevertheless, the criterion based on “the place of establishment of the provider” has an exception resulting from the provisions of Article 259 B of the same Code, according to which « the place of delivery is reputed to be in France if it is delivered by a provider established outside of France and if the buyer who is subjected to VAT has the headquarters of its activity, a fixed establishment where the service is provided, or their domicile or habitual residence in France » bearing in mind that « the place of delivery is reputed to not be in France even when the provider is established in France, if the buyer is established outside the European community… ». In other words, the place of delivery of services is in France if the buyer is established in France.
In the case considered in the decision of October 9th 2015, the Supreme Court had to decide on the following situation: a French company concluded a service contract with two other companies, one of which was American. This contract related in particular to the grant of license rights on certain of its products, so that they could be marketed. The French company considered that the place of delivery was the United States, not France, and therefore did not apply VAT to the amount received for the execution of the contract.
The tax authority, on the other hand, considered that, in reality, the intangible rights in question were not granted to the American company, but to a subsidiary of this company, which was situated in France. This subsidiary had already paid the price and registered the license rights as part of its assets. Consequentially, according to the tax authority, the place of delivery was France.
The Supreme Court has agreed with this line of reasoning and decided that the French subsidiary is the actual beneficiary of performance. It also stated: « the VAT rules regarding territory are those that are applicable at the date when the event generating the tax takes place ». It is therefore immaterial that the entities benefiting from the operating license were not clearly defined at the time of signature of the contract and were simply designated as "subsidiary companies" instead. Thus the State Council stated: « the buyer should be understood as the person who is the actual beneficiary of the provision of services ».
This decision was given based on events preceding the reform that was implemented by the budget law for 2010. As a matter of fact, since January 1st 2010, the new GTC Article 259 specified the general principle according to which the “place of service” for those subjected to this law is the place of establishment of the buyer, irrespective of the place of establishment of the provider. In this way, the quality of “buyer” turns out to be a decisive factor in order to pinpoint the place of taxation on the provision of services regarding intangible rights.