Real estate VAT, self-supply

Self-supply (LASM) in real estate VAT: when must you still sell to yourself?

A self-supply consists in subjecting to VAT a transaction that a VAT payer carries out for its own benefit, without any sale to a third party: the VAT payer reports the tax as if it had supplied the building or the works to itself. Since the Simplification Act of 20 December 2014, most self-supplies have disappeared for VAT payers who deduct input VAT in full. The mechanism nevertheless remains required in two main situations: the new building not sold within two years of completion by a VAT payer who does not recover the tax in full (2° of 1 of II of Article 257 of the CGI), and works in the social housing sector, where the self-supply enables the application of the reduced rate. The tax is computed on the cost price and gives rise to a corresponding deduction right, in full or in part. The firm identifies the self-supplies that are required, quantifies the tax and secures its payment within the statutory time limits.

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— In brief
Mechanism
Taxation of a transaction that the VAT payer carries out for its own benefit, without any transfer to a third party (Article 257, II of the CGI)
Remaining cases
New building not sold within two years of completion by a VAT payer who does not deduct VAT in full; works in the social housing sector
Taxable amount
Total cost price of the building or cost of the works (Article 266, 2-a of the CGI)
Payment
Tax to be reported no later than 31 December of the second year following completion (Article 270, II of the CGI)
Deduction
Self-supply VAT deductible under the ordinary rules, according to the VAT payer's deduction coefficient
— 01

A neutrality corrective that has become residual, but is still sanctioned

The self-supply is not a curiosity: it is a neutrality corrective. When a VAT payer constructs a building or has works carried out for its own needs, it escapes the VAT it would have borne by purchasing the same asset from a third party. To prevent self-production from conferring a tax advantage on VAT payers who do not deduct the tax in full, Article 257, II of the CGI treats certain allocations of assets as supplies made for consideration: the VAT payer then reports the VAT as if it had sold the asset to itself.

Act No. 2014-1545 of 20 December 2014 on the simplification of business life considerably narrowed the scope of the mechanism, following criticism grounded in European Union law. Purely neutral self-supplies, those in which the VAT payer would in any event have deducted the tax in full, were abolished: reporting a tax only to deduct it in full in the same month no longer had any justification. The self-supply of new buildings not resold within two years of completion therefore only survives where the constructing VAT payer cannot deduct in full the VAT relating to the building.

The mechanism thus retains two main fields of application. On the one hand, partial deductors or non-deductors who build: banks, insurers, exempt professions, non-profit organisations, exempt landlords. On the other hand, the social housing sector, where the self-supply of works plays the opposite role: it allows social landlords to subject certain works to the reduced rate provided for by Articles 278 sexies and 278 sexies A of the CGI, whereas the contractors would have invoiced a higher rate.

The firm favours a limited number of engagements in order to guarantee the direct involvement of the partners on each matter, and systematically assesses the relevance of its intervention before any commitment.

— 02

The self-supply mechanism, point by point

01

The cases in which the self-supply is still required

Since the Simplification Act of 20 December 2014, the self-supply of buildings only concerns VAT payers whose situation does not allow a full deduction.

  • New building not sold within two years: the VAT payer who has constructed or had constructed a new building and has not transferred it within two years of completion must account for a self-supply where it could not have deducted the tax in full had it acquired the building from another VAT payer (2° of 1 of II of Article 257 of the CGI; the waiver in the event of a sale within two years stems from administrative doctrine, BOI-TVA-IMM-10-10-20)
  • Allocation to the needs of the business: the production of an asset allocated to the needs of the business remains taxable where the acquisition of that asset from a third party would not give rise to a full deduction right
  • Works in social housing: the self-supply of certain works on social rental housing remains, not as a burden, but as the vehicle for the reduced rate provided for by Articles 278 sexies and 278 sexies A of the CGI (1° of 3 of I of Article 257 of the CGI)
  • Abolitions of 2014: no more self-supply for new buildings not resold within two years where the VAT payer deducts in full, nor for assets allocated to the needs of the business that give rise to a full deduction right
02

Taxable amount: the total cost price

The self-supply is not computed on a market value but on the full cost of the building for the VAT payer (Article 266, 2-a of the CGI).

  • The taxable amount is the total cost price of the building, including, in principle, the cost of the land
  • The cost price notably includes: studies, construction works, fees of architects and engineering firms, and costs directly attributable to the construction
  • For self-supplies of works, the taxable amount corresponds to the cost of the works carried out, supplies and services included
  • Reconstituting the cost price requires cost accounting for the project: it is the first point verified in the event of a tax audit
03

Chargeable event, payment and corresponding deduction

The self-supply follows its own timetable, built around the completion of the building, and results in a deduction whose extent depends on the VAT payer's deduction ratio.

  • For new buildings, the chargeable event occurs when the filing with the town hall of the declaration of completion of the works becomes due (Article 269, 1-b of the CGI)
  • The tax may be paid up to 31 December of the second year following that of completion, with no extension possible; for certain self-supplies in the social home-ownership sector (A and C of II of Article 278 sexies), the time limit is reduced to the last day of the sixth month following completion (Article 270, II of the CGI)
  • The VAT reported under the self-supply is deductible under the ordinary rules: in full if the building is allocated to taxed transactions, in part or not at all otherwise
  • For a partial deductor, the non-deductible fraction constitutes a definitive cost; the self-supply also serves as the starting point of the twenty-year adjustment period applicable to capitalised buildings
04

Self-supply of works in social housing and the risks of a missed self-supply

In the social sector, the self-supply is a rate tool; everywhere else, its omission exposes the taxpayer to reassessments that the corresponding deduction does not always neutralise.

  • Social landlords account for a self-supply on certain improvement, conversion, fitting-out or maintenance works on social rental housing, in order to bring them under the reduced rate of Articles 278 sexies and 278 sexies A of the CGI
  • The mechanism brings the VAT burden down to the reduced rate even though the contractors invoiced their works at a higher rate, the difference being refunded through the deduction right
  • The failure to account for a required self-supply exposes the taxpayer to a reassessment of the tax, together with late-payment interest; where the omitted tax was deductible, the tax authorities in principle apply the proportional 5% penalty provided for in Article 1788 A, 4 of the CGI for undeclared reverse-charged tax
  • The audit also covers the taxable amount used (completeness of the cost price) and compliance with the payment deadline; a missed self-supply can often be regularised voluntarily at a lower cost if it is identified in time
— 03

Our approach

The firm assists at every stage: qualification of the transaction (new building, two-year period, the VAT payer's deduction ratio) to determine whether a self-supply is required, reconstitution of the cost price serving as the taxable amount, payment of the tax within the time limits and computation of the corresponding deduction, implementation of reduced-rate self-supplies of works for social housing operators, and voluntary regularisation of missed self-supplies. The firm also assists VAT payers during audits relating to the taxable amount, the rate or the timetable of their self-supplies.

  • Self-supply (LASM)
  • Article 257, II of the CGI
  • Cost price
  • Reduced rate for social housing
  • Simplification Act of 2014
— FAQ

Self-supply: your questions

What is a self-supply for VAT purposes?

It is a transaction whereby a VAT payer is deemed to supply to itself an asset that it has produced or had produced for its own needs, without any sale to a third party. Article 257, II of the CGI treats this allocation as a supply made for consideration: the VAT payer reports VAT on the cost price of the asset, then deducts it under the ordinary rules. The objective is neutrality: self-production must not confer an advantage over a purchase from a third party on a VAT payer who does not recover the tax in full.

In which cases is the self-supply of a new building still compulsory?

Since Act No. 2014-1545 of 20 December 2014, the self-supply of a new building is only required where two conditions are met: the VAT payer that constructed it could not have deducted the VAT in full had it acquired the building from another VAT payer (2° of 1 of II of Article 257 of the CGI), and the building was not sold within two years of its completion, the administrative doctrine waiving the payment in the event of a sale within that period (BOI-TVA-IMM-10-10-20). A fully deducting developer that keeps an unsold building beyond two years therefore no longer has any self-supply to account for; a bank, an insurer or an exempt landlord that builds its head office or a rental building does.

What did the Simplification Act of 20 December 2014 change?

It abolished the self-supplies that had become pointless, those in which the tax reported was fully and immediately deductible, so that the transaction was neutral both in cash-flow and in cost terms. Notably abolished were the self-supply of assets allocated to the needs of the business giving rise to a full deduction right, and the self-supply of new buildings not resold within two years where the constructor deducts in full. The mechanism has thus become residual: it only survives where it produces a real effect, for partial deductors and in the social housing sector.

On what basis is the self-supply VAT computed?

On the total cost price of the building or of the works, and not on a market value (Article 266, 2-a of the CGI). The cost price in principle includes the cost of the land, the construction works, the studies and fees, as well as the costs directly attributable to the project. Reconstituting this taxable amount is a demanding accounting exercise: an incomplete amount exposes the taxpayer to a reassessment, while an overstated amount needlessly increases the non-deductible fraction of the tax for a partial deductor.

When must the tax be reported and paid?

For new buildings, the chargeable event occurs when the filing with the town hall of the declaration of completion of the works becomes due (Article 269, 1-b of the CGI). The tax may then be paid on the turnover returns up to 31 December of the second year following that of completion, with no extension provided for by the statute; for certain self-supplies in the social home-ownership sector, the time limit is reduced to six months (Article 270, II of the CGI). Missing this deadline is one of the most frequent grounds for reassessment in this area.

Is the VAT paid under the self-supply deductible?

Yes, under the ordinary rules. The tax reported under the self-supply gives rise to a corresponding deduction right, determined by the VAT payer's deduction ratio and the allocation of the building: full deduction if the building is used exclusively for taxed transactions, partial or no deduction otherwise. It is precisely when the deduction is not total that the self-supply has a cost, the non-deductible fraction remaining definitively borne by the VAT payer, and that is the reason why the mechanism was only kept in that case.

Why do social landlords account for self-supplies of works?

Because the self-supply operates there as a rate tool. Works contractors invoice their services to social landlords at their own applicable rate; accounting for a self-supply of works makes it possible to bring the transaction under the reduced rate provided for by Articles 278 sexies and 278 sexies A of the CGI for certain works on social rental housing. The landlord reports the tax at the reduced rate on the cost of the works and deducts the VAT invoiced by the contractors, the difference being refunded to it. The self-supply, a constraint elsewhere, is here an advantage not to be missed.

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