Council of State, July 23, 2024, No. 481894, BNP Paribas SA
- Case Background: BNP Paribas SA, in its corporate finance activities, claimed that success fees received for its operations should benefit from a VAT exemption under Article 261 C, 1° e of the French General Tax Code (CGI). These fees were linked to services provided during capital operations such as mergers and acquisitions (M&A).
- Fee Structure: BNP Paribas charged a fixed fee upon the announcement of an operation and an additional success fee only payable upon the completion of an acquisition. While VAT was applied to fixed fees, the success fees were considered exempt by BNP Paribas.
- Tax Authority’s Position: The French tax administration rejected the VAT exemption for the success fees, arguing that such fees do not qualify under the VAT exemption for securities transactions.
- Council of State’s Ruling:
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- The Council of State upheld the Administrative Court of Appeal’s decision, arguing that the success fee did not constitute a distinctly remunerated service, nor was it the predominant service within a complex set of services.
- The Council emphasized three points:
- Contracts from periods prior to the disputed periods did not indicate that the success fee related to a service falling under the VAT exemption for securities transactions.
- No evidence showed that the success fee was for a specific service, justifying the refusal to consider it as the main service in a complex operation.
- The summary table provided by BNP Paribas was deemed insufficiently convincing.
- Implications: The Council of State’s decision indicates that success fees charged by investment banks are not automatically VAT-exempt. The ruling clarifies that unless it can be demonstrated that the success fee remunerates a distinct, VAT-exempt service, it should be considered part of taxable corporate finance services. This decision underscores the importance of clear contractual delineation of services for VAT purposes.
Source PwC
