Several rulings of the Conseil d'État have progressively tightened the analytical framework under which an individual selling building land may be reclassified as a VAT taxable person, the doctrine of "active steps of land marketing" derived from the CJEU case law Słaby/Kuć of 15 September 2011 (C-180/10 and C-181/10). This page summarises the recent developments: characterisation of means similar to those of a professional, interaction with the issue of undeclared activity (LPF art. L.176) where no return has been filed, and the applicable reassessment period. Utmost vigilance is required for individuals holding substantial land assets who are considering subdivision and sale transactions.
The Słaby (C-180/10) and Kuć (C-181/10) judgments of 15 September 2011 laid down the fundamental test: an individual who, in preparation for the sale, deploys means similar to those of a producer, a trader or a service provider carries on an economic activity within the meaning of the VAT Directive and becomes a taxable person for the transaction concerned, even where it is an isolated one.
The Conseil d'État has transposed this test into French law and has refined it regularly. Recent rulings show a trend towards a stricter approach: the accumulation of several indicia (servicing of the land, parcel subdivision, professional marketing, use of intermediaries, dedicated structuring) is sufficient to characterise the active steps, even where the seller has no prior commercial track record. The boundary between mere asset management and economic activity has thus shifted, to the detriment of individuals holding land assets.
The heaviest risk is not the VAT itself (recoverable by a taxable purchaser) but the retroactive reclassification combined with the extended reassessment period of article L.176 of the LPF, up to 10 years in the event of undeclared activity (LPF art. L.176 and French Tax Code art. 1728, 1, c: 80% surcharge). Heightened vigilance is required for subdivision-and-sale transactions involving family assets.
Beyond the general test, several case-law clarifications now structure practice in this area.
No single indicium, taken in isolation, characterises the active steps on its own. It is the accumulation of several elements (servicing of the land, parcel subdivision, active marketing, use of intermediaries, dedicated structuring) that triggers the reclassification. The defence therefore requires an item-by-item analysis of each indicium and of their overall consistency.
An individual with no prior involvement in real-estate transactions may be classified as a taxable person for the disposal concerned: the classification is assessed transaction by transaction. This test offers little protection to heirs of land assets who decide to enhance their value on a one-off basis using substantial means.
The creation of an SCI is not in itself a strong indicium of active steps: a traditional family SCI managing rental property remains, by nature, within mere asset management. It is the concrete commercial acts, active steps of land marketing within the meaning of the CJEU Słaby case law (servicing of the land, division into plots, professional marketing, canvassing of developers), that characterise the economic activity. The creation of a structure specifically dedicated to development (a development SAS, a land-development SCI with a contribution of works) may be added to the body of indicia, but is not sufficient on its own.
If the reclassified individual has neither declared the activity nor registered, the tax authorities may invoke an undeclared activity (LPF art. L.176) and extend the period to 10 years, with an 80% surcharge (French Tax Code art. 1728, 1, c). Absent an undeclared activity, the period is 3 years (LPF art. L.176 for VAT). The defence rests on demonstrating an excusable error as to the reporting obligation.
A disposal that falls within VAT sees its registration duties reduced to the land registration tax of 0.715% (instead of 5.80% / 6.40%). The economic trade-off between VAT exposure (recoverable by a taxable purchaser) and standard registration duties is therefore not always unfavourable to the individual: it depends on the status of the purchaser and the context of the transaction.
For individuals holding land assets who are considering disposal transactions (division of inherited property, land value enhancement, family subdivisions), the firm conducts a prior audit of the potential classification in light of the Słaby/Kuć case law and the recent rulings of the Conseil d'État. The objective is to make a fully informed choice between VAT exposure and structuring within mere asset management.
In the event of litigation over past transactions, we build the defence on the classification of the indicia, the excusable error as to the reporting obligation, and the scope of the tax reassessment.
If the sale amounts to mere asset management, the individual remains outside the scope of VAT: standard registration duties apply, with no VAT. If, however, the individual has deployed means similar to those of a professional (servicing of the land, subdivision, marketing), he or she becomes an occasional taxable person within the meaning of article 256 A of the French Tax Code. The disposal becomes subject to VAT at 20%, with, in return, a right to deduct input VAT on the preparatory costs.
By the absence of significant means deployed in preparation for the sale. A direct disposal of inherited land, without preparatory works, without parcel subdivision, without active canvassing, through an ordinary estate agency: such elements remain, in principle, within asset management. The boundary blurs as soon as several indicia accumulate: the body of indicia prevails.
The standard period for VAT is 3 years (LPF art. L.176). But if the reclassified individual has neither declared the activity nor registered as a taxable person, the tax authorities may invoke an undeclared activity and extend the period to 10 years (LPF art. L.176) with an 80% surcharge (French Tax Code art. 1728, 1, c). The defence rests on demonstrating an excusable error.
Yes, by demonstrating an excusable error as to the reporting obligation, for instance a mistaken belief that the transactions fell within mere asset management. The courts assess this excuse on a case-by-case basis. A discharge of the 80% surcharge does not automatically end the application of the ten-year reassessment period: the two mechanisms are legally distinct. See our analysis: Undeclared property-dealing activity.
Three steps: (1) a prior analysis of the body of indicia with a tax lawyer; (2) an explicit structuring of the vehicle (remaining within asset management or deliberately creating a taxable structure); (3) an economic trade-off between VAT exposure (with a right of deduction) and standard registration duties. An upstream audit secures the position in the event of a subsequent tax audit.
No, not automatically. The direct disposal of inherited land, without significant preparatory works, remains in principle within asset management. But if the heir develops the land (servicing, division into plots, active canvassing of developers), the transaction shifts into active steps. The same question arises for undivided estates that decide to develop before selling: coordination among the co-owners may reinforce the active character of the transaction.
Not always. If the purchaser is itself subject to VAT (a developer, a property company), it recovers the VAT charged: the net cost for the purchaser is neutral. And the seller may deduct input VAT on the preparatory costs (servicing, surveyor, town planner). Where the disposal is made to a taxable purchaser, VAT exposure may therefore be economically more favourable than the asset-management regime (transfer duties of 5.80%). The trade-off must be assessed on a case-by-case basis.
Topics frequently linked with VAT for individual sellers.
General framework of real-estate VAT: scope, regimes, options, exemptions.
Voir la page VATCriteria of the CJEU Słaby/Kuć case law and their application in French law.
Voir la page VATDistinction between mere asset management and economic activity.
Voir la page Property dealerRisk of a ten-year reclassification in the event of undeclared transactions.
Voir la pageA first confidential discussion to assess your transaction in light of the Słaby/Kuć case law, weigh the VAT exposure and secure the structuring.
© BENSAID Avocats — The information on this site does not constitute legal advice and cannot replace personalised tax analysis.