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France: Appeals court affirms, no permanent establishment for Irish entity

France: No permanent establishment for Irish entity

The Administrative Court of Appeal of Paris (la Cour administrative d’appel de Paris) on 25 April 2019 issued a decision affirming a 2017 judgment of the lower tax court (Paris) that an Irish entity of a multinational corporation did not have a permanent establishment in France because of the activities of a French related entity.


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Read an April 2019 release (French) from the appeals court that describes the appellate court’s decision.


Between 2005 and 2010, the French entity provided digital marketing advice and assistance to the Irish entity regarding its French sales under the terms of a marketing and services agreement.

In 2011, the French tax authorities conducted a “tax raid” of the French entity’s offices, and based on information seized, the tax authorities took the position that the Irish entity actually performed services for French customers from a permanent establishment (PE) in France.

The lower tax court in Paris—following a line of established legal analysis of the concepts of “permanent establishment” and of the authority “to commit”—held in 2017 that while the French entity had acted as a dependent agent, it did not have the authority to commit the Irish entity. The lower court found that while all contracts were approved by the Irish entity, the contract validation process was a mere formality and the contracts were not concluded in France. The two conditions (dependence and authority to commit) necessary for finding a permanent establishment were missing; thus, the court concluded that the Irish entity did not have a permanent establishment in France. Read TaxNewsFlash

Appeals court decision

The court of appeals in April 2019 affirmed that the Irish entity did not have a permanent establishment in France and, in reaching this conclusion, addressed the two conditions or elements for finding a permanent establishment in France.

On the status of dependent agent—

  • First, according to the marketing and services agreement between the French entity and the Irish entity, the appeals court noted that the French entity provided services for the Irish entity “according to its instructions.”
  • Second, those services only benefitted the Irish entity.
  • Third, the appeals court considered that because the Irish entity reimbursed all expenses incurred on its behalf by the French entity plus an 8% markup, the French entity did not “support” any financial risk resulting from its activity and it was legally and economically dependent of the Irish entity.

Based on these elements, the appeals court held that the French entity did not have the status as an independent agent.

On the authority of the French entity to commit the Irish entity to a commercial relationship—

According to the court of appeals, the French tax authorities failed to prove that the French entity had the authority to commit the Irish entity in a commercial relationship. According to the appeals court:

  • There was no proof that the French entity had the authority to conclude contracts in the name of the Irish entity. The assistance and related activities provided to the Irish entity by the French entity did not imply that the Irish entity had authorized the French entity to conclude contracts in its name. The fact that the Irish entity added its signature to documents using an electronic process also did not constitute proof of the authority to commit. In addition, the appellate court decision highlighted the fact that the Irish entity only allowed customer advertisements to be posted online after it reviewed and signed the contracts.
  • While internal documents from the French entity showed that its employees were recruited, trained, and remunerated for “selling” the certain advertising products, the agreements concluded between the advertising agencies and the advertisers referred to the "purchase" of this product from the French entity but this did not support the assertion that employees of the French entity could have been able to commercially engage or commit the Irish entity on their own.
  • The fact that the French entity was in charge of post-selling operations (such as resolution of commercial or technical problems, recovery of unpaid bills, etc.) was not proof of an authority to commit the Irish entity to a commercial relationship.

The appeals court also considered that the Irish entity did not have a fixed place of business in France to serve as its premises, and the staff of the French entity was at its sole disposal for the French entity’s own activity.

In conclusion, the appeals court concluded that the French entity did not constitute a permanent establishment of the Irish entity in France. 

KPMG observation

Tax professionals in France believe that the French tax authorities might seek to bring the case before the Conseil d’Etat (the French Supreme Administrative Court), but that in any event, the appeals court decision highlights how the definition of a permanent establishment (under income tax treaties drafted in a “pre-BEPS world”) is difficult to apply to digital activities in France, given that the French courts have been following a strict legal analysis.

The definition of permanent establishment pursuant to the France-Ireland income tax treaty is in the taxpayer’s favor in this case. However, the new definition of a permanent establishment under Article 12 of the multilateral instrument (MLI) in accordance with BEPS Action 7, reflects a broader definition of a “dependent agent” in affiliated company situations. This broader definition would entered in force through the MLI and in turn could lead to a different conclusion in similar cases in the future, provided the applicable income tax treaty is affected by the MLI ratification.

Lastly, this appeals court decision could have political implications, given that it was released a few weeks before the discussions in the Sénat (upper house of the French Parliament) on draft legislation related to the tax on digital services—read TaxNewsFlashand also a few weeks before the G20 summit at which negotiations on the “significant digital presence” are expected.


For more information, contact a tax professional with KPMG Avocats, a KPMG member firm in France:

Marie-Pierre Hôo | + 33 (0) 1 55 68 49 09 |

Patrick Seroin | + 33 (0) 1 55 68 48 02 |

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