French Used-Car Dealers Hail Crackdown on Tax Fraud

LONDON – The French motor trade is declaring success in a multiyear campaign to persuade the government to tighten up the procedures for payment of value-added-tax on secondhand vehicles imported into the country.

The French Ministry of Finance has proposed reforms to the 2014 national budget designed to end a cross-border fraud estimated to have cost the country €1 billion ($1.22 billion) through the sale of about 160,000 used autos in the past 10 years, depressing the market for new domestic and imported cars. This estimate is given by the FNAA, the French association for small businesses in the motor trade.

Concerns have been especially intense about the sale of high-end secondhand cars from Germany into France, hitting both the country’s new- and used-car car markets. The FNAA says the proposed move will come as a ‟great relief” for its 29,147 dealers who have suffered unfair competition for years at the hands of fraudsters.

Under a loophole in the tax laws, dishonest traders have been able to evade the payment of virtually all VAT (currently 20% in France) on imported secondhand cars. The tax was due where it exceeded sales taxes already paid in the foreign country of the seller; only the additional VAT due would be paid.

This system has been vulnerable to falsified documentation, claiming payments of VAT in the exporting country that actually never were paid.

Under the proposed legislation VAT would become payable in France on the entire selling price of the vehicle, making the tax much harder to evade than under the old system.

The FNAA has brought several civil actions against unscrupulous dealers faking such documents in recent years. It succeeded in more than a dozen cases in lower courts that were upheld on appeal and in three judgments of France’s Supreme Court, which has ‟regularly condemned these agents for evading VAT, fraud, forgery and use of false documents.”

Until now, these cases have not persuaded the government to change the law.

The trade group says the fraud has made consumers ‟believe that honest secondhand traders overcharge, even though it is these fraudsters who defraud the regulation on VAT and penalize government accounts by depriving them of valuable and legitimate tax revenues.”

The proposed change is subject to approval by both the French National Assembly and the Senate, where it is under discussion. ‟We are satisfied with the (proposed reforms) as it stands. It is close to the position we have put forward,” says Jacques Klein, who handles technical policy for the FNAA, which helped negotiate the wording with the finance ministry.

Klein tells WardsAuto politicians must agree on the proposals before the end of the year to implement the new system in July.

Harry Sanne, managing director of the European Association of Independent Vehicle Traders, says such VAT problems occur across Europe.

‟The bottom line is, this doesn’t appear to be a French-only problem,” he says. “It is also not solely a phenomenon of cars exported from Germany, but VAT fraud seems to occur in (probably) all markets/member states of the European Union.”

Sanne emphasizes a condition for membership in his association is the legal and transparent handling of VAT in all transactions. But he worries the new French system might end up being more complex than the old, “with multiple VAT payments and/or an extended processing time,” so that “importing or exporting companies do not see any more profit in the trade.”

If this happened, his association would call for additional reforms “to make the trade scenario viable and profitable again,” Sanne says. But at present, ‟we are all waiting for news from the French lawmakers.”