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On 11 December 2020, in a Conversant/ValueClick case, the French Supreme Administrative Court, which sat for the occasion in tax “plenary” formation (when the French Supreme Court considers that it has to rule on questions of principle, both complex and technical, the four chambers specialized in tax matters all sit together as a group) ruled on the question of the characterization of a permanent establishment with regard to both CIT and VAT, of an Irish company operating in the digital sector and benefiting from services rendered by another company of the group established in France.

Following a detailed analysis of the circumstances of the case, the Paris administrative court of appeal had ruled in favour of the absence of a permanent establishment in France of the Irish company ValueClick International Ltd for both CIT and VAT purposes considering that the French company ValueClick France did not have sufficient resources to carry out the activity of the Irish company, nor the power to bind the latter.

In the case at hand, the French Supreme Administrative Court, in line with its Public Reporter’s opinion, overturned the Paris administrative court of appeal decision, thus calling into question the approach taken by the Paris Administrative Court of Appeal.

While the debate on the taxation of the digital economy has been particularly active at the national and international level for several years (BEPS works, MLI, current OECD work on Pillars 1 and 2 and Digital Services Tax), the case at hand relates to the application of traditional tax rules outside this debate.

With this decision, the French Supreme Administrative Court sets out principles that lead to giving a broad scope to treaty provisions and an innovative approach to EU law with regard to the characterization of a permanent establishment for VAT purposes.

In this respect, the French Supreme Administrate Court ruled on the main following points:

  • It ruled that a French company shall be regarded as a dependant agent PE exercising powers enabling it to bind the foreign entity in a commercial relationship relating to transactions constituting its own activity when it decides, in a usual manner, on transactions that the Irish company merely limits itself to endorsing and which, when so endorsed, bind it. The fact that the French entity does not formally enter into contracts in the name of the Irish company is proving to be irrelevant.

    In particular, the French Supreme Administrative Court considers that this approach is in line with OECD commentaries (in particular § 32.1 and 33 of the commentaries on Article 5 of the Model Convention). It is important to stress on this point that, without going towards a dynamic approach to the OECD commentaries, the Supreme Court expressly refers to commentaries issued after the entry into force of the Treaty concluded between France and Ireland. Revising its earlier case law (in particular French Supreme Administrative Court 30/12/2003, no. 233894, SA Andritz), this taking into account of subsequent comments may in certain circumstances create difficulties in terms of interpretation of international treaties. In this respect we shall point out the content of §5 of the court decision stating in this case that the following findings from the Paris administrative court of appeal should have entailed the characterization of a DAPE based on the France-Ireland tax treaty: “if the Irish company sets the template contracts entered into with advertisers 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.

  • With regard to VAT, the French supreme administrative court considered that the French company had (i) the human resources to autonomously provide the advertising services, since they were able to decide to conclude a contract with an advertiser and (ii) 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 centers) was not located in France.

    The French Supreme Administrative Court considers that as long as the services can be connected to a permanent establishment there is no need to investigate whether this reference is fiscally more rational than a reference to the provider’s place of business. By doing so, the French Supreme Court, did not follow the principles set out by the CJEU according to which the place of business constitutes the primary point of reference (see for example regarding digital services CJEU, Welmory, October 16, 2014, No. C-605/12). Consequently, the solution reached by the French Supreme Administrative Court leads to a de facto approximation of CIT and VAT with respect to the qualification of permanent establishments, although the applicable rules are different.

It is also important to note that the French Supreme Court did not rule on the question of the existence of a fixed place of business of the foreign company in France, another approach that makes it possible to characterize a permanent establishment for tax treaty purposes and that had been adopted in this case, both by the French Tax Authorities and by the Supreme Administrative Court’s Public Reporter in his opinion.

At the end of this decision, and as emphasized by the Public Reporter in his opinion, the French Tax Authorities should be able to choose the basis of tax reassessments in a situation such as that of the present decision by placing itself either in the field of transfer pricing by increasing the remuneration of the French company or by characterizing a permanent establishment in France of a foreign entity.

However, while the amounts of the tax reassessments shall in principle be the same, it should be noted that the consequences of each of these two bases are not the same. First, the taxpayers subject to the reassessments are not the same insofar as transfer-pricing reassessments for insufficient remuneration relates to the French entity, whereas reassessments on the ground of the permanent establishment relates to the foreign entity. Moreover, unless the conditions of the right to make a mistake are met, the reassessments made on the ground of the permanent establishment generally lead the French tax authorities to put forward a concealed activity for which the statute of limitations is extended and an automatic 80% penalty is applied resulting in the referral of this case to the Public Prosecutor since the entry into force of the law of October 23, 2018 relating to the fight against fraud.

This case has been referred by the French Supreme Administrative Court to the Paris Administrative Court of Appeal after setting aside the order of the latter, which will have to apply the above-mentioned principles in the decision it will have to render again on the merits of the case.

Access the decision of the French Supreme Administrative Court (in French)


Eric Meier is a Partner in the Tax Group of Baker & McKenzie in Paris. He assists his clients in particular in the context of: search and seizure procedures; following up tax audits (concerning in particular the following issues : difficulties of applying international tax treaties, permanent establishment, anti-abuse rules, withholding tax, …) ; negotiations with the tax authorities; disputes before the administratives and civil Courts; procedures before the EU Institutions and; interventions before the French Constitutional Council. He also advices his clients in the context of analysis of tax risks and transfer of tax receivables. Before joining Baker McKenzie, Mr. Meier worked at Arthur Andersen International and Deloitte / Taj. Mr. Meier's clients pursue their activities in particular in the areas of the e-business, hotel industry, trade and large retail, media/telecom, bank and insurance and luxury. Mr. Meier also regularly writes for La Revue de Droit Fiscal.


Ariane Calloud is a member of the Tax Practice Group in Baker McKenzie Paris. Prior to joining the Firm in 2007, Ms. Calloud worked in the tax department of Landwell & Associés (PwC) where she practiced corporate tax and international tax law.


Regis Torlet is a senior counsel in Baker McKenzie Paris office.