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    Global Daily Tax News, France Challenged Over VAT Special Scheme For Small Firms, (Jul 9, 2026)

    The European Commission has sent a reasoned opinion to France for failing to provide all the IT functionalities necessary to ensure the exchange of information between member states as from January 1, 2025, as required by Directive (EU) 2020/285 on t ...

    The European Commission has sent a reasoned opinion to France for failing to provide all the IT functionalities necessary to ensure the exchange of information between member states as from January 1, 2025, as required by Directive (EU) 2020/285 on the special scheme for small enterprises.

    Under the VAT special scheme for small enterprises, member states may provide that supplies may be made free from value-added tax by a small business providing its annual turnover does not exceed a given threshold, with these thresholds currently varying between member states. The SME exemption is optional for member states to implement and for eligible businesses to use.

    As well as not being required to charge value-added tax on their supplies, small businesses may be exempted from certain or all VAT obligations relating to identification, invoicing, accounting, or returns. A major drawback of the exemption, however, is that, almost always, businesses may not claim back any value-added tax on their inputs.

    Under updated rules introduced from January 1, 2025, through Council Directive (EU) 2020/285, member states are allowed to continue exempting small businesses with a maximum turnover of EUR85,000 in one member state. This EUR85,000 threshold is now the maximum permissable threshold that applies to all member states.

    In addition, another key change enables small businesses not established in a member state to take advantage of that state's exemption scheme for small businesses, providing their annual turnover in the country is below the state's threshold, and providing also that their EU-wide turnover does not exceed EUR100,000.

    To facilitate the scheme across the EU, IT systems should permit the exchange of information between member states.

    According to the Commission, the French IT system does not currently provide all the functionalities needed to ensure the exchange of information necessary for the correct operation of this special scheme.

    In October 2025, the Commission sent a letter of formal notice to France for failing to fully implement the rules of the Directive. It has now decided to escalate the infringement proceedings by sending a reasoned opinion. France now has two months to respond and take the necessary measures or the Commission may decide to refer the case to the Court of Justice of the European Union.

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