VAT margin scheme

[svanteschubert]

Background

Management of transactions subject to the VAT margin scheme

French Use Case n°33: Transactions subject to the margin system

Principle :

VAT on the margin is not calculated on the selling price, but on the difference between the selling price and the margin of purchase. The amount of VAT on the margin is not shown on the invoice, which poses a problem for e-invoicing.

The VAT margin scheme applies to transactions covered by e) of 1 article 266 [travel agencies and tour operators] and articles 268 [building land] and 297 A [second-hand goods, works of art, collectors' items and antiques] of the French General Tax Code.

Example:

A travel agency invoices a single service for the organization of a seminar (flight - hotels - rooms) to a taxable person.

Figure: Transactions subject to the margin system

The specific data and associated management rules for e-invoicing are :

• Business rule (G1.56) : VAT on the margin
• VAT type code (BT 118) : E
• VAT exemption reason code (BT-121): VATEX-DOM-/F/I/J
• Tax base for VAT type (BT-116): sales price incl. VAT (entered instead of tax base excl. VAT) as specified in BT-112.
• VAT amount of invoice (BT-110): none

the specificities of billing and payment data transmission are :

• Invoice transmission (flow 2)
• Transmission of "cashed" status in the invoice lifecycle (flow 6) because services provided

A travel agency invoices a flight+hotel to a private individual:

The specifics of the data and associated management rules in e-reporting are :

• Category of operations: Operations subject to a special scheme for which the VAT margin scheme has been applied (TMA 1);
• Tax base for VAT type: margin amount excluding VAT ;
• Invoice VAT amount equal to margin VAT amount.

NOTE: The text/pictures of this use case no. 33 were taken from the French government site! The text was extracted from V2.3 - deepl English DOCX and any pictures were taken from V2.2 - original English PDF)

[edmundgray]

The VAT Margin Scheme is a system used to tax the difference between the amount that a business pays for certain items and the amount that it later sells those items for. This scheme is primarily used to reduce the possibility of double taxation on the sale of second-hand goods.

Under this scheme, dealers are allowed to pay Value-Added Tax (VAT) on the difference between the sale price and the purchase price of the goods. This scheme is optional and applies to certain second-hand goods, works of art, antiques, collector's items, second-hand vehicles, and second-hand agricultural machinery.

Example

A second-hand car dealer buys a car for €10,000 from a private individual. The dealer then sells the car for €15,000. Under the VAT Margin Scheme, the dealer would only need to pay VAT on the profit margin, which in this case is €5,000 (€15,000 - €10,000).

Assuming the VAT rate is 20%, the dealer would pay €1,000 in VAT (20% of €5,000). This is significantly less than the €3,000 the dealer would have to pay if VAT was applied to the full selling price of the car (20% of €15,000).