Bad debt is allowed in France. A business can claim VAT back when this amount has not been collected from the customer. The condition is however that the supplier has exhausted all legal remedies to get the invoice paid. In practice, bad debt would be allowed when the invoice has been written off and legal actions have been taken.
Regarding formalities, the business must send the customer a copy of the relevant invoice with the following wording: ¨facture demeurée impayée pour la somme de €… (net amount) et pour la some de €… (VAT amount) qui ne peut faire l´objet d´une déduction (article 272 Code Général des Impots)¨
This VAT will only be deducted by the end of the second year following the year in which the debt became irrecoverable. The corrected amounts are reported in box 21 of the return.
More information (in French) can be found here.