Corporate Tax News Issue 57 - January 2021

Permanent Establishment - The French Administrative Supreme Court adopts an extensive approach

The French Supreme Administrative Court (“the Court”), meeting in plenary session, ruled that an Irish Company, operating in the digital sector, will be regarded as having a dependent agent permanent establishment in France (for corporate income tax and VAT purposes) through its French affiliate, even if contracts were not formerly signed with clients in France by the latter.

Decision details

In the present case, an Irish company carried out digital marketing services in France through its French affiliate. In that respect, the Irish company concluded with the French company a marketing, management and administrative services agreement, remunerated on a cost-plus basis with an 8% mark-up.

The Court decided that a French company, even though it did not formally sign contracts with clients but habitually used its authority to engage with client transactions that were automatically signed by the Irish entity, and that were legally binding, was therefore a dependent agent, characterising a permanent establishment.

The Court indeed considered that “if the Irish company sets the template contracts entered into with advertisers (clients) in order to give them the benefit of the services that it operates, as well as the general pricing conditions, the choice of entering into a contract with an advertiser and all the tasks necessary for its conclusion are the responsibility of the French company's employees, with the Irish company merely validating the contract by means of a signature that is automatic in nature”.

It is worth noting that the Court expressly referred to OECD commentaries published after the date of conclusion of the DTT between Ireland and France. This appears to be an innovative approach, as until now the Court only allowed  references to OECD commentaries already published on the date of signature of the DTT.

With regard to VAT, the Court also considered that the French company had a permanent establishment, since it had:

  • the human resources to autonomously provide the advertising services, as they were able to decide to conclude a contract with an advertiser; and
  • the appropriate technical resources to provide the advertising services autonomously since it had access to technical functionalities (without involvement of a foreign entity) due to the creation, the parameter settings and the management of the customer account by the employees of the French company, even if the technical infrastructure (including servers and data centres) was not located in France.


While the debate on the taxation of the digital economy is active and ongoing (BEPS, MLI, OECD work on Pillars 1 and 2 and Digital Services Tax), the case at hand relates to the application of traditional tax rules. Nevertheless, it may be inspired by such debate - notably the multilateral instrument that recognises as a permanent establishment a person “acting in a Contracting State on behalf of an enterprise and, in doing so, habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the enterprise”.

It should also be noted, as indicated by the Public Reporter in his opinion, that the French Tax Authorities should be able, in such a situation, to choose the basis of tax reassessments by using either transfer pricing and increasing the taxable margin of the French company or by characterising a permanent establishment in France.


We would then recommend, in light of this decision, that French entities/branches remunerated on a cost plus basis, and having sales functions even without signature abilities,  review their TP policy.

Sacha Boksenbaum