France tax developments: Key permanent establishment decision


Tax eAlerte

French version

In a decision dated December 11, 2020, the French Administrative Supreme Court overturned a Paris Court of Appeal decision dated March 1, 2018 (which had previously concluded in the absence of a PE under the France-Ireland Tax Treaty) and ruled against the  Irish subsidiary ("Irish Co") of a US group. The years at stake were 2009 to 2011. It concluded that the French affiliate of the group ("French Co") should be considered as the dependent agent of Irish Co in France for PE purposes.

In Brief

Irish Co, a subsidiary of a US group. and sister company of French Co, carried out digital marketing activities in Europe mainly consisting in selling marketing affiliation, media and technology services in these markets. 

In France, French Co was remunerated by Irish Co on a cost plus 8% basis for various services including administrative and marketing activities & representation (e.g. identification, prospecting, targeting of clients on the French market, etc.).  The contracts with French clients were signed by Irish Co.

The French Administrative Supreme Court ruled that French Co should be regarded as a dependant agent in France of Irish Co, even if it did not formally conclude contracts in the name of Irish Co, since it decided on transactions that Irish Co merely and routinely approved and as such became legally binding to Irish Co.  

Importance of the decision and takeaways

  • The decision is an important reversal of prior favorable recent court cases (e.g. Google decision April 25, 2019).
  • The decision relates to the provision of the France-Ireland Tax Treaty dated March 21, 1968.  It seems to be the first time the French Administrative Supreme Court (in contradiction to well-established French Case law) used OECD comments released after the signature of an applicable tax treaty, in support of its arguments (here OCDE comments published on 01.25.2003 and 07.15.2005).  
  • The decision has corporate tax but also important VAT impacts (the Court considered that Irish Co also had a PE in France for VAT purposes).  
  • The profit allocation to the French PE was not addressed in the decision.
  • This landmark decision may likely set a trend and also lead to the unilateral application by France of an extensive interpretation of the definition of permanent establishments under Article 12 of the MLI adopted with no reservation by France. 
  • The decision being broad in its application (i.e. not limited to digital activities), MNCs with activities in France should review their operating models in light of this decision.


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Guillaume Glon

Guillaume Glon

Avocat, Associé, Managing Partner, PwC Société d'Avocats