Credit transfer and invoice discount: what remains

The two instruments pursued the same result by different routes. One operated on the credit, the other on the invoice price.

The invoice discount was a reduction in the price granted by the supplier, who recovered the amount as a tax credit. The client did not advance the sum corresponding to the deduction.

Credit transfer converted the deduction into a transferable tax credit, typically bought by financial institutions at less than face value. The gap between face value and price was the cost of the operation.

In both cases the result for the client was immediate monetisation of a benefit the deduction would have spread over ten years. Tax capacity thereby became irrelevant.

Both options were the subject of a general block, introduced to contain the effects on public finances and the difficulties that had emerged in the circulation of credits. The block was later extended and the exceptions narrowed.

The block operated prospectively, barring the exercise of the options for expenditure after it came into force, while preserving positions for which particular formalities had already been completed. The protective cut off dates should be checked against the text in force.

Later legislative measures further narrowed the exceptions originally provided. The current scope should be checked at the date of the works.

The systemic consequence should be stated clearly because it reverses the approach of earlier years. It concerns the reversal of rule and exception.

Today the rule is direct use of the deduction in the tax return, and the alternative options are the exception, confined to the situations the rules preserve. What remains should be checked case by case.

Until a few years ago the reasoning was the opposite: projects were designed assuming monetisation, and direct deduction was the residual route. The reversal must be built into feasibility assessments.

For a professional who worked in that period, this requires a change of reflex in conducting feasibility assessments. Tax capacity becomes a decisive variable again.

Aspect	Before the block	Today
Credit transfer	Generally available	Residual, only in the situations preserved
Invoice discount	Generally available	Residual, only in the situations preserved
Direct use in the tax return	The residual route	The general rule
Relevance of tax capacity	Irrelevant to feasibility	A decisive variable
Credits already created	In circulation	In circulation, untouched by the block

The situations still permitted are limited and concern circumstances the rules identify, typically linked to personal conditions of the beneficiaries, to works on properties affected by natural disasters, or to positions for which the formalities had been completed by the protective cut off dates. Each situation carries conditions of its own.

The exact scope is among the most frequently amended elements in this whole field, and the one for which checking the text in force is least deferrable. The check should be made against the text in force at the date.

The operational point is clear: no feasibility assessment should assume an alternative option is available without having checked it against the rules in force at the date and against the client's actual position. The check precedes the estimate rather than following it.

The block concerns the exercise of the option, not credits already created. The distinction has real practical effects.

Credits transferred before the block circulate under the rules of their own regime and are used in set off by transferees according to the instalments due to them. The instalments due to transferees are set by the rules.

On this front aspects remain open that also concern professionals: reviews of transferred positions, potential liability of the parties involved, and litigation over the attestations that supported the transfer. The case law is not yet settled.

A professional who gave certifications on projects whose credits were transferred retains an exposure that does not depend on their own client's position. Those positions should be mapped before any request arrives.

This is the point that most changes estimating work. It concerns the return of tax capacity to the feasibility variables.

With the options available, a client's tax capacity was irrelevant to feasibility: anyone could carry out the works because the benefit was monetised in any event. Today feasibility depends on that capacity too.

Without the options, tax capacity returns to the centre. A client without tax sufficient to absorb the annual instalments bears the gross cost of the works, and for them the relief is a nominal benefit.

Two practical consequences follow.

The capacity check should be brought forward to the feasibility stage rather than placed downstream of the estimate. The check belongs to the client's tax adviser.

The scale of the works may depend on the outcome of that check, and on substantial projects for private clients this can require the programme to be revised. The question is worth raising at the first meeting.

Three things should be said, and are best said at the outset. They concern the regime, the spreading and the capacity check.

That the current regime provides for direct use of the deduction in the tax return, and that the immediate monetisation options are no longer generally available. The point should be made before the programme is set.

That the benefit is spread over ten years and depends each year on the beneficiary's tax capacity. The annual instalment should be stated explicitly.

That checking that capacity belongs to their tax adviser and should be done before committing to the works. The referral delimits the professional's scope of responsibility.

One observation on delivery. Many clients remember the earlier regime and frame their requests on that basis. Clearing the point up at the outset prevents the expectation from shaping the definition of the works programme.

Assuming monetisation is available is the first, and reflects a superseded regime. The current regime provides for direct use in the tax return.

Postponing the capacity check to a point downstream of the estimate is the second, and may force a revision of the programme at an advanced stage. The check should be prompted at the start of the appointment.

Believing the block affected credits already created is the third: it concerns the exercise of the option, not the circulation of existing credits. Credits already created continue to circulate under their own regime.

Treating one's own position as closed on projects whose credits were transferred is the fourth. The professional's exposure is separate from the client's.