The French Finance Act for 2026 introduces a significant change with the creation of Article 273 septies E of the French Tax Code. Until now, the free distribution of goods in a promotional context was considered to preclude VAT deduction, regardless of the underlying business purpose. This restrictive approach was rooted in the civil law concept of a gratuitous act.
Article 273 septies E marks a clear break with that logic. It establishes a broader principle: goods and services used for advertising purposes now give rise to a right to deduct VAT, provided they are connected to the company’s taxable economic activity. The fact that goods are given away free of charge is no longer, in itself, a barrier to deduction.
In practice, businesses will now be able to recover VAT on goods distributed as part of promotional campaigns, including items given free of charge to customers or prospects. Marketing strategies involving branded merchandise or loyalty schemes will benefit from greater certainty around VAT deduction rights.
The reform brings French law into line with the principle of VAT neutrality as interpreted by the CJEU, favouring an economic approach over a purely formalistic reading of deduction rights.
