France: Criteria for finding permanent establishment | KPMG Global
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France: Court decision, criteria for finding permanent establishment

France: Criteria for finding permanent establishment

The Paris Administrative Court of Appeal (Cour administrative d'appel) issued a decision that affirms the criteria to be used by the French courts to find the presence of a permanent establishment.


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The case identifying information is:  Sté Valueclick Ltd., n° 17PA01538 (CAA Paris, 9e ch., 1 March 2018)


At issue was whether actions by employees in France were sufficient to give rise to a permanent establishment (PE) of an Irish company in France.

In evaluating the presence of a PE of the Irish company in France, the appeals court evaluated whether:

  • French employees of the Irish company negotiated the terms of contracts and were involved in drafting certain contractual clauses with the customers.
  • The Irish managers automatically signed the contracts and whether this action corresponded to a simple validation of the contracts negotiated and drawn up by the managers and employees in France.
  • The advertising programs were developed and monitored by employees in France.
  • The French company’s employees acted towards third parties as employees of the Irish company.
  • Customers and publishers confused the Irish and French companies.

The court concluded that none of these factors established that the employees in France had been authorized to act on behalf of and in the name of the Irish company. 

KPMG observation

Tax professionals with Fidal* have observed that in the instant case, the Paris Administrative Court of Appeal generally followed prior case law from a July 2017 decision of the Paris Administrative Court—a case that presented similar facts and reflected similar arguments being by the tax authorities. Read TaxNewsFlash-Europe

As in that July 2017 case, the appeals court in the March 2018 case found whether the contracts could come into effect and whether the services could be rendered without prior approval and prior validation of the contracts by the Irish entity were critical elements.

The recent decision is being viewed by some tax professionals as weakening the position of the French tax administration which, for some six to seven years, has relied on the concept of permanent establishment as “a weapon of mass taxation” in making foreign e-commerce entities (both big and small) subject to tax in France. 

As with the July 2017 case, the appeals court in March 2018 adopted a two-part reasoning: 

  • First, the contract between the French company and the Irish company did not authorize the French company to commit its principal contractually.
  • Second, the facts raised by the court did not make it possible to question this lack of authority because the services could not be rendered by the Irish company until the customer contract had been approved by the Irish company.

The Paris Administrative Court of Appeal—like the Paris Administrative Court in last July’s decision—continues to apply the principles adopted by the Conseil d’Etat (France’s highest administrative court) in the Zimmer decision in 2010.


For more information, contact a tax professional with Fidal* in France:

Laurence Mazevet | +33 1 55 68 15 35 |

* Fidal is a French law firm that is independent from KPMG and its member firms.

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