Tax-Inclusive vs Tax-Exclusive Pricing

The Difference Between Tax-Inclusive and Tax-Exclusive Prices

A tax-inclusive price — TTC, for toutes taxes comprises — is the price of a good or service with every applicable tax and charge already added. It is the amount the end consumer pays at the point of purchase.

A tax-exclusive price — HT, for hors taxes — is the price of the same good or service before those taxes and charges are applied. It is the base price.

In France, invoices and quotes conventionally state tax-exclusive prices, while advertisements and price tags state tax-inclusive ones.

Why B2B Transactions Use Tax-Exclusive Prices

Business-to-business transactions are usually quoted tax-exclusive because that figure reflects the actual cost of the good or service.

When taxes and charges are folded into a single tax-inclusive price, it is hard to tell how much of the amount reaches the producer or supplier. A tax-exclusive price separates the cost of the item from the charges attached to it, which matters to a business comparing the real cost of competing products before committing to a purchase.

Tax-exclusive pricing also gives a clearer view of two related VAT movements: VAT collection and VAT recovery.

VAT — value-added tax — is a consumption tax applied to most goods and services bought and sold in the European Union. Businesses in France are required to collect it from their customers and remit it to the state.

VAT collection works as follows:

1. A business selling a good or service invoices its customers the tax-inclusive price, which includes VAT at the applicable rate.
2. The business records the VAT due in its accounts and reports it on a VAT return, filed monthly or quarterly depending on turnover.
3. The business remits the VAT due to the state.

A business that buys goods and services from other businesses can reclaim the VAT it paid on those purchases. This is VAT recovery:

1. A business buying a good or service from a supplier pays VAT at the applicable rate.
2. The business records the VAT paid in its accounts and reports it on its VAT return, monthly or quarterly depending on turnover.
3. On that return, the business deducts the VAT paid on purchases from the VAT due on sales.
   • Where more VAT was paid on purchases than was collected on sales, the business can claim a refund of the difference from the state.
   • Where more VAT was collected on sales than was paid on purchases, the business owes the difference to the state.

How VAT Is Calculated

VAT is charged as a percentage of the tax-exclusive price. The applicable rate depends on the type of good or service, and in mainland France generally falls between 2.1% and 20%.

Mainland France applies four rates:

• The standard rate, currently 20%, which covers most goods and services.
• The intermediate rate, currently 10%, which covers items such as restaurant meals, passenger transport, and certain home renovation work.
• The reduced rate, currently 5.5%, which covers essentials such as food, books, and certain medicines.
• The super-reduced rate, currently 2.1%, which covers items such as press publications and medicines reimbursed by social security.

The French overseas departments apply their own rates, in three categories:

• a standard rate of 8.5%
• a reduced rate of 2.1%, covering everything that falls under the mainland 5.5% or 10% rates, as well as medicines for human use reimbursed by social security
• two special rates: 1.75%, on sales of live animals and butchery and delicatessen products to non-taxable persons, and 1.05%, on certain performances and certain press and online press publications

Rates change from time to time, and exceptions apply. Some sales of second-hand goods are VAT-exempt, for instance, and in 2020 Germany temporarily cut its standard rate from 19% to 16% and its reduced rate from 7% to 5% to stimulate consumption during the COVID-19 pandemic.

VAT on B2B Transactions Within the EU

Within the European Union, VAT generally applies to business-to-business transactions the same way it applies to business-to-consumer ones: a business buying from a supplier in another EU country pays VAT at the rate in force in its own country, even where the supplier’s country applies a different rate.

Special rules cover intra-community transactions — those between businesses in different EU countries — to prevent tax fraud. A business buying goods from a supplier in another EU country does not pay VAT at the time of purchase. Instead it declares the purchase and the VAT due on its own VAT return. This is the reverse charge, and it stops VAT being paid twice, once in each country.

Under the reverse charge, a business reports and remits the VAT it has collected from its customers and paid on its purchases itself: it calculates the VAT due or recoverable and declares it to the tax authority, rather than waiting for the authority to calculate it and issue a demand.

The reverse charge is mandatory for most businesses in France and in other EU countries. It simplifies VAT handling for the business and reduces administrative cost for the tax authority. To apply it, the business files a VAT return monthly or quarterly, depending on turnover, stating the VAT due or recoverable.

These rules cover intra-community transactions only. They do not apply to B2B transactions with countries outside the EU.