France VAT Deduction Ruling: Strict Proof Needed for Real Estate Refunds

March 29, 2025

Featured Partners

Under French law, when taxable persons do renovation work on real estate intending to engage in commercial rental activities, they may seek VAT deductions. However, the right to a refund depends on the taxable person's ability to prove the property's economic purpose.

In a case involving a request for a VAT credit refund of EUR 950,000, the Administrative Court of Appeal of Marseille released a ruling that underlines the importance of meeting strict evidentiary requirements.

Facts of the Case and Court Decision

The case involves the renovation work done by the taxable persons between 2010 and 2012 on villas in Cannes, which the taxable persons claim to be intended for para-hotel operations, such as short-term rental. Under the French VAT rules and regulations, para-hotel operations are subject to VAT.

The taxable persons submitted a request for a VAT credit refund, which the competent Tax Authority, the entity responsible for overseeing and enforcing tax laws, denied. The primary reason for the Tax Authority's denial was that the evidence provided by the taxable person did not adequately state and define the economic purpose of the real estate in question.

After the Administrative Court of Nice confirmed the initial Tax Authority decision, the taxable person brought the case before the Administrative Court of Appeal of Marseille, which once again confirmed that the Tax Authority was right to deny the VAT refund request.

In its decision, the Marseilles Court underlined that timely providing adequate evidence, such as rental agreements or mandates with licensed real estate agencies and correspondence with booking platforms or similar commercial partners, is critical for demonstrating the real purpose of the real estate. Additionally, marketing and rental efforts during the renovation phase, including an explicit declaration of intent in financial and corporate records, all serve as substantial evidence.

Conclusion

The affirmative decision of the Marseille Administrative Court sets essential guidelines for real estate investors and businesses that want to exercise the right to VAT deduction and refund. It underlines that taxable persons must respect strict requirements and provide necessary evidence.

Failing to meet these requirements will result in denying the taxable persons' claims, which is costly in the construction industry.

Source: BDO

Can VAT be deducted on renovation costs for real estate in France?

Yes, VAT can be deducted if the property is used for taxable activities, such as commercial or para-hotel rental operations, and proper evidence is provided.

What kind of evidence is required to claim VAT deduction on real estate in France?

Valid proof includes rental contracts, agency mandates, booking platform communications, marketing efforts, and financial records indicating the commercial intent.

What was the outcome of the Marseille Court's ruling on VAT refunds?

The court upheld the denial of a EUR 950,000 VAT refund due to insufficient evidence proving the commercial purpose of the renovated properties.

Why did the French Tax Authority deny the VAT refund request?

The refund was denied because the taxpayer failed to clearly demonstrate the property's economic use for VAT-liable rental activities.

What is considered a para-hotel operation under French VAT law?

Para-hotel operations include furnished, short-term rentals with hotel-like services, which are subject to VAT and eligible for VAT deductions if properly documented.

How can real estate investors avoid VAT deduction denial in France?

Investors should maintain clear, timely documentation proving rental intent, including agreements, marketing activities, and entries in corporate records.

VAT Compliance and Reporting

VAT

Construction Services