VAT adjustments and property sales: the twenty-year period

It is the period during which the VAT deducted on a building held as a fixed asset can still be called into question (article 207 of annex II to the CGI). The period covers twenty years, including the year in which the building was acquired, completed or first used, each year representing one twentieth of the initial tax. At the end of the period, the deduction becomes final: no further adjustment can be required, whatever the later use or sale of the building.

The sale of a building completed more than five years earlier is in principle exempt from VAT. Carried out during the adjustment period, it triggers a one-off global adjustment: the seller repays the VAT initially deducted, up to the twentieths corresponding to the years still to run (article 207 of annex II to the CGI). A sale in the eleventh year thus leaves ten twentieths to repay, half of the original tax.

The main safeguard is to make the sale subject to VAT. For a building completed more than five years earlier, this means exercising the option provided for in article 260, 5° bis of the CGI, formalised in the deed of sale. As the sale is taxed, the building is deemed allocated to a transaction carrying a right of deduction until the end of the period: no clawback is due. Whether the option is worthwhile, however, depends on the buyer's position and the impact on transfer duties.

Yes. Where the initial deduction was only partial (a building partly allocated to exempt transactions, for instance), taxing the sale during the adjustment period allows an additional deduction: the seller recovers a fraction of the tax not deducted at the outset, calculated on the years still to run (article 207 of annex II to the CGI). A taxed sale can thus improve the seller's VAT position rather than worsen it.

Where the sale is not subject to VAT and gives rise to an adjustment, the seller may transfer to the buyer a fraction of the tax charged on the building, corresponding to the remaining adjustment years (article 207, III of annex II to the CGI). The transfer is made by issuing a certificate stating the amount of tax the buyer is entitled to deduct. A taxable buyer who books the building as a fixed asset and allocates it to transactions carrying a right of deduction can then deduct the tax so transferred, which softens the cost of the clawback in the overall balance of the transaction.

Yes, where its conditions are met. Article 257 bis of the CGI relieves from VAT the transfer of a total or partial going concern between taxable persons, a frequent case being the sale of a leased building with the leases transferred, the buyer continuing the letting activity subject to VAT. The buyer is deemed to step into the seller's shoes: no adjustment is required on the transfer, and the twenty-year period continues in the buyer's hands. Whether a going concern exists must, however, be checked case by case, as the tax authorities and the courts attach precise conditions to it.

Yes. Independently of any sale, article 207 of annex II to the CGI requires an annual adjustment where the year's deduction coefficient departs from the reference coefficient beyond the regulatory threshold: change in the use of the premises, shift in the share of taxed activity, move from a taxed letting to an exempt letting. The adjustment works both ways, repayment or additional deduction, up to one twentieth per year concerned. Annual monitoring of the coefficient is therefore essential throughout the period.