Indirect Tax News - March 2021

Territoriality - Characterisation of fixed establishments for VAT purpose

A recent French Administrative High Court decision in Conversant International Limited (Valueclick), CE, 11 December 2020, Ass. Plén., considered whether a sister of an Irish company is a fixed establishment for French VAT purposes.

Valueclick International Ltd., which is located in Ireland and is now named Conversant International Ltd, provides services called "Media", "Affiliate Marketing", and "Technologies". It conducts its digital marketing activities through its sister companies, including Valueclick France.

Pursuant to a 1 July 2008 contract for the provision of services concluded between the companies of the group (Intercompany Services Agreement), the French company must provide the Irish company with various services. Among the services provided to the Irish company is: marketing assistance consisting of acting as the representative marketing of Valueclick International, which includes identifying, prospecting and reporting potential customers to Valueclick International; ongoing management services and back-office support services; administrative assistance, including accounting, human resource management, information technology; and treasury service. For these services, Valueclick France receives remuneration of Cost +8%.

The French Administrative High Court has taken a broad view in interpreting whether a fixed establishment exists for both corporate income tax and VAT purposes.

Focusing on VAT, the High Court concluded that the human resources and technical capability that gave access to the marketing services sold by the foreign sister company, including the ability to create and manage clients’ accounts, was sufficient to characterize a fixed establishment, even if no data center used for the execution of the linking functions is located in France.

Given that this ruling was rendered by the Conseil d’Etat “Assemblée Plénière”, the highest level of the French Administrative High Court, the decision will increase the tax exposure of international groups. As a result, international groups should review their current structures to determine whether they are impacted by this decision.

David Hirsch