Property margin scheme refused where the acquired and resold property lacked legal identity

Summary

• The Toulon Administrative Court judgment No. 2302187 reportedly refused the French property VAT margin scheme where a habitable developed property was acquired but the subsequent sale concerned property treated as building land after demolition and redevelopment steps. [pwcavocats.com]
• The court considered the acquisition and resale deeds, the condition of the building, demolition of the roof, the existence of a building permit and the tax classification stated by the parties. These factors indicated a change between the property acquired and the property resold.
• Property traders should assess margin-scheme eligibility before demolition, subdivision or planning changes. The absence of deductible VAT on acquisition does not alone secure margin taxation. Transaction documentation must establish the required continuity between the legal characteristics of the acquired and resold property.

Article

In a judgment dated 15 June 2026, the Toulon Administrative Court reportedly rejected application of the VAT margin scheme to the resale of property by Sopages, a property trading company.

The company acquired a property known as Villa Pierre in Cannes in 2012. At acquisition, the property included a single-storey residential villa and rights over common areas. The villa was habitable and had reportedly been rented shortly before the transaction.

In 2017, the company resold the property and applied the margin scheme under Article 268 of the French Tax Code. The tax authority challenged that treatment, taking the position that the sale concerned building land rather than the dwelling originally acquired.

The court examined the legal and factual state of the asset at both stages. By the time of resale, the transfer deed described the construction as unusable due to removal of the roof and the abandoned state of the building. The property was sold with a building permit, and the notarised documentation reportedly noted a change in tax classification and contemplated VAT on the total selling price.

On that basis, the court found that there was insufficient identity between the developed property acquired and the building land resold. The margin scheme was therefore unavailable and VAT was due on the total consideration.

The judgment forms part of continuing litigation concerning the scope of the French property margin scheme following case law of the Court of Justice of the European Union. The classification remains highly sensitive to the exact condition of the asset, contractual documentation and works undertaken between acquisition and resale.

Property traders should complete a transaction-specific review covering the original deed, planning status, cadastral division, demolition or transformation work, permits and wording of the resale deed. Pricing and contractual tax clauses should also address the financial exposure if the margin treatment is later challenged.

Source Links

• Read the July 2026 PwC VAT eMagazine case overview [pwcavocats.com]

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