VAT Group: Paris Tightens, Zurich Eases

End of three-year commitments, payroll tax exemption, transition to the CIBS: What needs to be decided by October 31, 2026, in France, and how Switzerland is handling it

In France:

Pursuant to Article 162 of Law No. 2020-1721 of December 29, 2020, on the 2021 Budget, and codified in Article 256 C of the General Tax Code (CGI), the single taxable person regime, commonly referred to as the “VAT group,” has been in effect since January 1, 2023. It implements the option available to Member States under Article 11 of Directive 2006/112/EC of November 28, 2006, to treat legally independent but closely related entities as a single taxable person.

Long limited to just a few groups, the program is now seeing renewed interest due to the convergence of three developments: the expiration of the first three-year commitment periods, the payroll tax exemption established by the 2025 Finance Act, and the transfer of the program to the Code of Taxation on Goods and Services (CIBS), now set for January 1, 2027.

Any changes to the scope or options scheduled to take effect in 2027 must be reported to the administration no later than October 31, 2026.

In summary, the system neutralizes VAT on transactions between members, allows them to offset their tax credits and liabilities, and consolidates their reporting obligations into a single return.

1. Principle of the system: a single taxpayer and members organized by sector

Taxpayers who have their place of business or a permanent establishment in France—and who, although legally independent, are closely linked to one another financially, economically, and organizationally (General Tax Code, Art. 256 C, II)—may opt for this regime:

(a) financial relationship: legal control, whether direct or indirect, by the same person, characterized by ownership of more than 50 percent of the capital or voting rights;

(b) economic link: engaging in a primary activity of the same nature, in interdependent or complementary activities, or in activities pursuing a common economic objective, or in an activity that benefits the other members;

(c) organizational link: subordination to a common management or coordinated organization of all or part of the activities.

These conditions must be met on an ongoing basis. The loss of any one of these ties results in the automatic withdrawal of the affected member effective the first day of the following month, and the dissolution of the group when the conditions are no longer met by at least two of its members. The scope, however, is freely determined: there are no mandatory inclusion rules (“all or nothing”) requiring the inclusion of all eligible entities.

For each member, this option results in the loss of taxpayer status as defined in Article 256 A of the General Tax Code (CGI). Each member automatically constitutes a business sector distinct from that of the single taxpayer, without any specific formalities. Any pre-existing business sectors within a member, established pursuant to Article 209 of Annex II to the CGI, are maintained as subsectors, which continue to be governed by general law. This applies, for example, to the leasing of an unfurnished building that was subject to the option provided for in Article 260, 2° of the CGI.

Transactions between members are treated as internal transactions within the single taxable entity and fall outside the scope of VAT; they do not give rise to invoicing or the collection of the tax. Transactions with third parties—whether purchases, sales, or the provision of services—are deemed to have been carried out by the single taxable entity itself. The representative designated by the members fulfills all reporting and payment obligations: each month, the representative files a single Form No. 3310-CA3 for transactions carried out with third parties by all members and pays the corresponding tax.

Each member remains jointly and severally liable for payment of the tax, late-payment interest, and penalties, up to the amount of the taxes and penalties that the member would owe if he or she were not a member of the single taxpayer. This mechanism, which is essential to the system’s balance, must be governed by an agreement among the members that sets forth, in particular, the allocation of the tax burden and the procedures for seeking redress.

The automatic allocation of members to sectors makes it more difficult to determine the tax coefficient applicable to mixed expenses—that is, expenses that contribute to both transactions eligible for deduction and those not eligible for deduction. In an update dated January 14, 2026 (BOI-TVA-AU-40), the tax authorities clarified the procedures for determining the provisional single tax coefficient when the addition of a new member renders the reference to the previous year’s revenue irrelevant. This issue must be anticipated whenever a new entity joins an established group, in order to limit adjustments related to the final tax coefficient.

2. A three-year commitment and an annual review

The formal requirements are strict: the option must be submitted by the representative, with the written consent of each member, no later than October 31 of the year preceding the year in which it takes effect. It takes effect on the following January 1 and must cover a period of three calendar years. The representative must also submit to the tax authorities, no later than January 10 of each year, a list of members as of January 1 (the deadline was moved up from January 31 to January 10 effective in 2024 by the 2023 Finance Act).

During the three-year period, the group’s scope is, in principle, fixed: no voluntary withdrawals or new members are permitted. Two exceptions are provided for: the admission of a taxpayer who did not meet the affiliation requirements at the time of opting in but subsequently comes to meet them—such a taxpayer is then bound until the end of the current period—and the automatic withdrawal of a member who ceases to meet these requirements.

At the end of the three-year period, the arrangement continues, but its scope becomes subject to annual review. The admission of a new member requires the written consent of the representative and the entity concerned; a member’s voluntary withdrawal requires the representative’s consent. In both cases, notification must be provided no later than October 31 to take effect on the following January 1. The voluntary dissolution of the group, meanwhile, requires the express consent of each member.

The October 31, 2026, deadline applies to most groups:

3. Neutralizing the Group Effect

The main obstacle to forming a VAT group stemmed from payroll tax, which is owed by employers who are not subject to VAT on at least 90 percent of their revenue (General Tax Code, Art. 231, 1). Since internal transactions fell outside the scope of VAT, the corresponding revenue automatically increased the portion of revenue not subject to VAT used to calculate the VAT liability ratio. A member that was fully taxable outside the group—particularly when providing services to other members—could thus become liable for payroll tax solely as a result of the election.

Article 36 of Law No. 2025-127 of February 14, 2025, on the 2025 Budget, inserted Article 231 A into the General Tax Code, which now effectively exempts from payroll tax remuneration paid on or after January 1, 2026, by an employer that is a member of a single taxpaying entity, subject to two cumulative conditions:

(a) the employer would not be liable for the tax if it were not a member of the single taxpayer group;

(b) the taxable person’s turnover eligible for deduction represents at least 90 percent of their VAT-taxable turnover for the previous calendar year.

The exemption primarily benefits members whose business consists, in whole or in part, of providing services to other entities within the group (shared service centers, support companies, logistics or IT entities) in groups with a predominantly industrial or commercial focus. However, it does not apply, on the one hand, to employers who would be liable for the tax regardless of their membership in the group, and, on the other hand, to all group members when the group does not meet the 90% threshold. This is frequently the case for banking, insurance, or healthcare groups, for which the regime nevertheless offers the greatest economic benefit by offsetting non-recoverable VAT on internal transactions. For these groups, the trade-off between VAT savings and the additional payroll tax cost must be quantified on a case-by-case basis. Since the threshold is assessed based on the previous year, compliance can be effectively verified annually.

4. Recodification in the CIBS: A Change in Data Storage Format Effective January 1, 2027

Ordinance No. 2025-1247 of December 17, 2025, transfers all VAT-related legislation from the General Tax Code (CGI) to a new Book II of the Code of Tax Procedures (CIBS), as part of the recodification effort that began in 2021. Originally set for September 1, 2026, its effective date was postponed to January 1, 2027, by Order No. 2026-671 of July 27, 2026, in particular to separate it from the effective date of the electronic invoicing reform. The “single taxpayer” regime is the subject of a dedicated chapter in the CIBS (Art. L. 234-1 et seq.). Article 256 C of the CGI therefore remains applicable until December 31, 2026.

As a result, options and notifications issued through October 31, 2026, will be based on Article 256 C of the CGI, while the group will operate under the new provisions of the CIBS effective January 1, 2027. Consequently, we recommend citing both references in election notices and in agreements between members. Furthermore, since the recodification is being carried out without changing the law, it involves numerous reclassifications and downgrades of legislative provisions to the regulatory level—particularly rules of a declaratory nature—as well as a complete renumbering. Contracts, group agreements, internal compliance procedures, and billing statements referencing Article 256 C of the CGI will need to be updated.

In an administrative ruling dated February 18, 2026 (BOI-RES-TVA-000253), the tax authorities confirmed that all guidelines published in the BOFiP, as well as individual rulings issued under the General Tax Code (CGI), remain enforceable under the terms of Articles L. 80 A and L. 80 B of the Book of Tax Procedures.

5. Group Taxation Under Swiss Law

Switzerland, which is not bound by Directive 2006/112/EC, has long had a comparable system in place. Under Article 13 of the Federal Value-Added Tax Act (LTVA), entities with their headquarters or a permanent establishment within the territory of the Confederation that are under a single management may request to be treated as a single taxable entity (tax group). “Single management” refers to control over an entity’s conduct through the holding of a majority of voting rights, by contract, or by any other means (Article 15 of the VAT Ordinance). Unlike under French law, no separate economic or organizational link is required: the criterion of control is sufficient.

The membership is freely determined from among eligible entities, and multiple subgroups may be formed. Group taxation is subject to authorization by the Federal Tax Administration (FTA), upon request accompanied by a written declaration from each member. In principle, members must close their financial statements on the same date, although the FTA allows for exceptions (VAT Info 03). The group has its own VAT number; its representative—who may be a group member or a third party domiciled in Switzerland—files a single return based on the internal returns of each member.

Group status may be elected at the beginning of any tax period, which corresponds to the calendar year, and may be terminated at the end of any tax period (Article 13 of the VAT Act). Members may join or leave the group, upon request, effective for the following tax period (Article 20 of the VAT Ordinance). Swiss law therefore does not have the three-year commitment required under French law.

Each member is jointly and severally liable for the group’s entire tax debt, not just its own share. This liability extends to tax liabilities, interest, and fees incurred while the member was part of the group, with the exception of fines. After leaving the group, a member is liable only for claims arising from its own activities. Joint and several liability is thus significantly broader than in France, where it is limited to the taxes and penalties that the member would owe if it were not a member.

A framework to be established for Franco-Swiss groups:

Both systems are strictly territorial: only entities established in France may be members of a single French taxable entity, and only entities established in Switzerland may be members of a Swiss tax group. A single group of companies may therefore form two separate VAT groups, with no possibility of offsetting between them. Transactions between a head office and its permanent establishment also require special attention: according to the Court of Justice of the European Union, services provided by a head office established in a third country to its branch—which is a member of a VAT group—constitute taxable transactions (CJEU, September 17, 2014, Skandia America, C-7/13). This ruling directly affects Swiss companies whose French permanent establishment is integrated into a single taxable entity.

Key Takeaways

• By October 31, 2026: notify the authorities of any decision to form a group effective January 1, 2027, as well as any voluntary entry into or exit from a group for groups that have completed their three-year period;
• For groups formed as of January 1, 2024, review the scope during the first opportunity to revise;
• Verify, on a member-by-member basis, eligibility for the payroll tax exemption provided for in Article 231 A of the General Tax Code, and verify annually that the 90% threshold is met at the group level;
• For groups that do not meet this threshold, quantify the trade-off between VAT savings and the cost of payroll tax;
• If a new member joins, determine the provisional single tax rate in accordance with the guidelines dated January 14, 2026;
• Update, effective January 1, 2027, the references to Article 256 C of the General Tax Code in option agreements, agreements among members, internal procedures, and billing statements;
• For groups operating in France and Switzerland, coordinate the analysis of the two tax systems, particularly with regard to the treatment of transactions between a Swiss headquarters and its French permanent establishment, which is part of a single taxable entity;
• Please submit the list of members as of January 1, 2027, no later than January 10, 2027.

The information above is current as of October 5, 2026. This letter is intended to provide general information only and does not constitute legal or tax advice.

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