Justifying Subcontractor Status for VAT Reverse Charge on Construction Works

Summary

VAT assessments issued on construction works not proven to be subcontracted. JMC, an individual enterprise active in masonry, renovation, and structural works, was subject to VAT reassessments after the tax authorities concluded that certain transactions were not eligible for the reverse charge mechanism reserved for subcontracting operations. JMC argued that the transactions in question were genuine subcontracting activities and should therefore be subject to the reverse charge under which the principal contractor accounts for the VAT.
Court accepted three operations as subcontracting but rejected the rest. The Court re-examined the evidence and accepted three operations as qualifying for the subcontracting reverse charge regime, where JMC had produced subcontracting declarations or payment delegations accompanied by corresponding invoices bearing the mention “autoliquidation” (reverse charge). For the remaining operations, however, JMC failed to provide sufficient documentation—no subcontracting contracts, no payment delegations, and no reconciliation between invoices and bank receipts—to support the subcontractor qualification.
Critical importance of comprehensive documentary evidence. This decision underscores that to benefit from the VAT reverse charge on subcontracting in the construction sector, taxpayers must be able to produce a coherent set of supporting documents: subcontracting contracts or payment delegations identifying the parties and the operation, invoices issued in the name of the principal contractor bearing the “reverse charge” mention, and concordance between these documents and actual bank receipts. Incomplete documentation will result in denial of the regime.

Article

JMC, an individual enterprise specialising in masonry, renovation, and structural building works, faced VAT reassessments after a tax audit. The tax administration considered that certain operations were not subject to the reverse charge mechanism applicable to subcontracting in the construction sector and assessed the corresponding VAT.

The Court of Appeal re-examined the documentation provided. It accepted three operations as qualifying for the subcontracting reverse charge, where JMC produced subcontracting declarations or payment delegations accompanied by invoices bearing the mention “autoliquidation.” For the remaining operations, JMC failed to provide contracts, payment delegations, or any reconciliation between invoices and bank transactions to substantiate the subcontractor status.

This ruling highlights the importance of maintaining a complete and coherent documentary chain to benefit from the VAT reverse charge on subcontracting: a subcontracting contract or payment delegation identifying the parties and the operation, an invoice issued in the name of the principal contractor with the reverse charge mention, and concordance between these documents and bank records.

Source PwC