VAT territoriality and permanent establishment

VAT permanent establishment:
the CJEU framework after Berlin Chemie

For an international group operating in France through a subsidiary, exclusive service provider or local asset, the question of permanent establishment arises on two fronts simultaneously: VAT (French Tax Code, art. 259 et seq, the concept of human and technical resources) and corporate income tax (French Tax Code, art. 209 and tax treaties, OECD model art. 5 and 7). When the French tax authority characterises an undeclared permanent establishment, the resulting assessments frequently reach millions of euros, including an 80% surcharge for undeclared activity. The case law of the Court of Justice of the European Union (Dong Yang, Titanium, Berlin Chemie, Cabot Plastics, Adient) provides a demanding, yet generally protective framework for operators that outsource. The firm applies this framework for foreign companies and multi-jurisdictional groups, from preventive audit through litigation before the Council of State and, where appropriate, referral for a preliminary ruling to the CJEU.

Consult the firm Permanent establishment risk in France
Analysis by François Ouairy, partner · Paris · Updated 6 October 2026

What is a permanent establishment for VAT purposes?

It is an establishment of a business, other than its place of establishment, characterised by a sufficient degree of permanence and a suitable structure in terms of human and technical resources (Implementing Regulation (EU) No 282/2011, art. 11). To determine the place of supply of services to a taxable person, the relevant establishment is the customer's: its resources must enable it to receive and use the services for its own needs (art. 11(1)). To designate the person liable for the tax, the supplier's establishment counts if it has the resources to provide the services and intervenes in the supply (art. 11(2) and art. 53).

Since Berlin Chemie (CJEU, 7 April 2022, C-333/20) the test has been stable: the resources may belong to a third party if they are at the company's disposal 'as if they were its own', but the same resources cannot both provide and receive the same services. Neither a shareholding nor contractual exclusivity is therefore enough to make a subsidiary, an exclusive service provider or a group toll manufacturer a permanent establishment of the foreign company: it must be shown that the company has their resources at its disposal as if they were its own (Cabot Plastics, 2023; Adient, 2024).

The concept is distinct from the permanent establishment for corporate income tax, whose characterisation rests on French case law (article 209, I of the French Tax Code only lays down the territoriality principle) and, where relevant, on the definition in the applicable tax treaty: see the definition of a permanent establishment and our page on permanent establishment risk in France.

Implementing Regulation (EU) No 282/2011, art. 11 and 53; CJEU C-333/20, C-232/22 and C-533/22; French Tax Code, art. 259 and 283-0. Checked on 6 October 2026.

— In brief
Key rulings
CJEU Dong Yang C-547/18; Titanium C-931/19; Berlin Chemie C-333/20; Cabot Plastics C-232/22; Adient C-533/22
Central criterion
Permanent structure with human and technical resources enabling receipt and use of services for its own needs
Interaction with CIT
Distinct concept from PE under corporate income tax (French Tax Code art. 209, OECD model art. 5 and 7; Council of State 11 Dec 2020, n° 420174, Conversant)
Risk exposure
Undeclared PE: corporate income tax and VAT assessments, 10-year statute of limitations and 80% surcharge if undeclared activity found (French Tax Procedure Code art. L. 169 for corporate income tax and art. L. 176 for VAT; French Tax Code art. 1728)
Typical stakes
Assessments of several million euros for international groups operating in France without declared structure
— 01

A two-level issue, with stakes measured in millions

Permanent establishment is the turning point in the taxation of foreign companies operating in France. For VAT, it determines the territoriality of supplies of services (French Tax Code, art. 259 et seq): if the French structure receives and uses services for its own needs, the transactions fall within the scope of French VAT, with registration, reporting and deduction rights. For corporate income tax, the question is governed by article 209 of the French Tax Code and tax treaties (OECD model, art. 5 and 7): a fixed place of business or dependent agent with authority to bind the company, according to the reading adopted by the Council of State in the Conversant (ValueClick) case of 11 December 2020 (n° 420174).

On the VAT side, the CJEU has developed a stringent analytical framework through five rulings: Dong Yang (C-547/18), Titanium (C-931/19), Berlin Chemie (C-333/20), Cabot Plastics (C-232/22) and Adient (C-533/22). A VAT permanent establishment requires a permanent structure with human and technical resources, which need not be owned by the company but must be controlled 'as if they were its own', and which must allow it to receive and use services for its own needs. Reliance on a local service provider, even if exclusive, is not sufficient: the same resources cannot simultaneously serve both to provide the service and to receive it.

This framework concerns the customer-side permanent establishment, the one that receives the services. VAT is also at stake on the other side, that of the supplier-side permanent establishment, and it is there that the heaviest French assessments arise. For services falling under article 259, 1° of the French Tax Code, the tax is in principle accounted for by the French customer where the supplier is not established in France (French Tax Code, art. 283, 2). But a foreign company that has in France a structure with a sufficient degree of permanence and the human and technical resources enabling it to provide the services it supplies (Implementing Regulation (EU) No 282/2011, art. 11(2)), and that actually intervenes in the transaction (purely administrative support tasks, such as accounting or invoicing, are not enough to establish such intervention: same regulation, art. 53), is not regarded, for the purpose of designating the person liable for the tax, as a taxable person established outside France (French Tax Code, art. 283-0). The reverse charge then no longer applies and the foreign company accounts for French VAT itself. That is precisely the ground on which VAT was assessed in the Conversant case: the Council of State held that, having a permanent establishment in France, the Irish company 'was solely liable for value added tax' on the services supplied, through that establishment, to customers established in France (Council of State, 4 April 2025, n° 461220 and 461310).

The financial scale justifies rigorous upstream analysis. When a permanent establishment is characterised retrospectively by the tax authority, the activity is frequently treated as undeclared: the statute of limitations extends to ten years (French Tax Procedure Code, art. L. 169 for corporate income tax and art. L. 176 for VAT) and the resulting assessments for corporate income tax and VAT are subject to an 80% surcharge (French Tax Code, art. 1728, 1, c). For an international group, the cumulative exposure routinely reaches several million euros. This is precisely the type of case the firm handles, in French and English, from its offices in Paris and Geneva.

Two procedural points are worth knowing before any discussion with the tax authority. First, characterising the activity as undeclared relieves the authority of the prior formal notice and opens assessment by default (French Tax Procedure Code, art. L. 66 and L. 68): the burden of proof shifts, and the company must show that the assessed bases are excessive (art. L. 193). Second, the characterisation is not automatic: it requires two cumulative conditions, failure to file returns within the legal time limit and failure to register the activity with the single business formalities desk (art. L. 176 for VAT, art. L. 169 for corporate income tax), and it is set aside where the company shows an error justifying its failure to meet these obligations, assessed in the light of the level of taxation in the State of the registered office and the exchange of information between the two administrations (Council of State, 7 December 2015, n° 368227).

More than four years after Berlin Chemie, the review comes down to three points. The Court has not changed course: in Cabot Plastics (2023) and Adient (2024) it applied the same test to exclusive toll manufacturers belonging to the same group as their customer, recalling that neither a shareholding nor exclusivity is enough and that the customer must be shown to have the provider's resources at its disposal as if they were its own. These judgments do not reopen cases already decided: in Conversant, ruling after remittal, the Council of State held that CJEU judgments handed down after its 2020 decision were not a new point of law allowing what it had finally decided to be reopened (Council of State, 4 April 2025, n° 461220 and 461310). Finally, the outlook is changing for platforms: Council Directive (EU) 2025/516 of 11 March 2025 ('ViDA') provides for a deemed supplier regime for short-term accommodation rental (thirty nights at most) and road passenger transport facilitated by a platform, which each Member State must apply between 1 July 2028 and 1 January 2030. That regime, not yet applicable, creates a deemed supplier fiction without any need to characterise a permanent establishment of the platform; the Berlin Chemie test continues to govern other situations.

The practical consequence is clear: the test protects a group that genuinely outsources; it does not protect a group whose French teams decide or perform on its behalf. That is what an audit examines, and that is where the defence is built. On the corporate income tax side, where the applicable treaty attributes profits on the basis of the separate and independent enterprise fiction, the permanent establishment's profits are determined following an approach close to the arm's length principle that governs transfer pricing.

— 02

5 lessons from the case law for international groups

1. A subsidiary is not, in itself, a permanent establishment (Dong Yang)

In Dong Yang (C-547/18, 7 May 2020), the CJEU holds that a service provider cannot infer the existence of a permanent establishment from its customer's mere fact of holding a local subsidiary. Capital ownership is not a substitute for functional analysis: it is the resources actually made available to the customer, and their control, that matter. A structuring principle for groups whose French presence is effected through service subsidiaries.

2. No human resources, no permanent establishment (Titanium)

In Titanium (C-931/19, 3 June 2021), property leased in a Member State, without personnel on the ground to manage it, does not constitute a permanent establishment. The two components, human AND technical resources, are cumulative: an asset alone, however significant, is never sufficient. A decisive lesson for foreign property-holding structures.

3. The 'as if they were its own' criterion (Berlin Chemie)

In Berlin Chemie (C-333/20, 7 April 2022), the CJEU clarifies that resources need not be owned by the customer: they may belong to a third party, provided the customer disposes of them 'as if they were its own'. But the same resources cannot be used both to provide services and to receive them: the local company rendering the service cannot, at the same time, constitute the permanent establishment of its client.

4. Toll manufacturing and exclusive intra-group services: no PE (Cabot Plastics, Adient)

Cabot Plastics (C-232/22, 29 June 2023) and then Adient (C-533/22, 13 June 2024) apply the framework to industrial arrangements: an exclusive toll manufacturing contract, even if durable and accompanied by ancillary services (warehousing, logistics, commercial support), does not create a permanent establishment for the ordering company, even between companies within the same group. The service provider that retains control of its resources acts for its own account.

5. Interaction with corporate income tax: two concepts, one audit (Conversant)

The corporate income tax permanent establishment follows different criteria: a fixed place of business or dependent agent as defined by tax treaties (OECD model, art. 5), with taxation of attributable profits (art. 7; French Tax Code, art. 209). In Conversant (Council of State, full fiscal bench, 11 Dec 2020, n° 420174), the Council of State found a PE where a French sister company effectively decided on contracts. The case ended with the decision of 4 April 2025 (n° 461220 and 461310): ruling after remittal, the Council of State held that CJEU judgments handed down after its 2020 decision are not a new point of law capable of setting aside the res judicata between the same parties, refused on that ground to make a preliminary reference, confirmed that the foreign company was solely liable for VAT in respect of its permanent establishment, and reinstated the 80% surcharge for undeclared activity, the company having failed to establish the error that would have justified its failure to declare. In proceedings already decided, the CJEU framework therefore does not allow a characterisation that has become res judicata to be reopened before the French courts. In an audit, the two characterisations are examined together: a coherent defence must cover both fronts, plus the risk of undeclared activity (10-year assessment, 80% surcharge).

— 03

The firm's approach

The firm advises international groups and foreign companies across the entire cycle: audit of the French presence against both permanent establishment concepts, contractual protection of arrangements with service providers and subsidiaries, defence in tax audits, and then litigation before administrative courts up to the Council of State, with where necessary a preliminary ruling before the CJEU. The firm's lawyers have appeared before the Court of Justice of the European Union and brought constitutional questions before the Council of State and Court of Cassation; the dual office presence Paris-Geneva and the handling of matters in English enable direct engagement with foreign tax directors and counsel of international groups.

As illustrations of the practice, without client identification: a European digital services group, assessed at over €4 million in corporate income tax and VAT on account of an undeclared permanent establishment with undeclared activity surcharge, the case defended on the dependent agent basis and the Berlin Chemie framework; an industrial group using an exclusive French toll manufacturer, its VAT exposure evaluated at several million euros over the unbarred period, analysed and contractually secured in light of Cabot Plastics and Adient; a foreign property-holding structure, its position under Titanium documented before any property letting, for VAT stakes exceeding €1 million.

Where the group already has existing counsel (lawyer or audit firm at the seat of the parent company), the firm acts as co-counsel: it provides the French law analysis and conduct of proceedings before the French tax authority and courts, and coordinates positions with those taken in other affected jurisdictions, to avoid any inconsistency that could be exploited in audit.

The firm is ranked Best Lawyers 2026 and Recommended in taxation of international groups by Leaders League (2026).

— Frequently asked questions

What is the financial exposure if an undeclared permanent establishment is characterised?

The exposure comprises VAT assessments on attributable operations, corporate income tax assessments on attributable profits, interest on late payment and, in the most severe cases, an 80% surcharge for undeclared activity (French Tax Code, art. 1728, 1, c) with a ten-year statute of limitations (French Tax Procedure Code, art. L. 169 for corporate income tax and art. L. 176 for VAT). For an international group with significant French flows, the total frequently reaches several million euros. The firm's first task is to quantify this exposure precisely, year by year and tax by tax, before defining a defence strategy.

What is a permanent establishment for VAT purposes, and how does it differ from PE for corporate income tax?

A VAT permanent establishment is a structure with a sufficient degree of permanence and human and technical resources, owned or controlled as if they were its own, enabling it to receive and use for its own needs the services in question (CJEU, Berlin Chemie, C-333/20). A corporate income tax permanent establishment rests on different criteria: a fixed place of business or dependent agent as defined by tax treaties (OECD model, art. 5 and 7; French Tax Code, art. 209; Council of State, 11 Dec 2020, n° 420174, Conversant). The two are independent: a group may qualify for one but not the other, and the defence must be structured accordingly.

Does reliance on a French subsidiary or exclusive service provider create a VAT permanent establishment?

No, in principle. A subsidiary holding is not enough (Dong Yang, C-547/18), an asset without personnel is not enough (Titanium, C-931/19), and an exclusive service provider, including intra-group toll manufacturing, is not enough either (Berlin Chemie, C-333/20; Cabot Plastics, C-232/22; Adient, C-533/22), so long as it retains control of its resources. The decisive line lies in effective control of local resources: placing personnel at the customer's disposal, operational direction from abroad, integration of teams. This is the factual terrain on which cases are won or lost.

What are the timescales for an audit from assessment to judgment?

A tax audit followed by a notice of assessment typically runs twelve to twenty-four months, including administrative appeals. Litigation before the administrative tribunal and appellate court adds years; an appeal to the Council of State, or even a preliminary ruling to the CJEU on the interpretation of the VAT directive, extends the horizon further. This duration is also a strategic parameter: it must be managed (payment deferral, security, accounting provisions) and weighs in the evaluation of any transactional settlement.

The group already has counsel in its home jurisdiction. How does the firm coordinate?

That is the most common scenario. The firm acts as French counsel alongside the group's existing counsel: French and EU law analysis, conduct of proceedings before the tax authority and courts, direct English-language engagement with the tax director and foreign counsel. The dual Paris-Geneva presence facilitates work with groups whose executive functions are based in Switzerland. The goal is a coherent position across jurisdictions: what is argued in France must not weaken positions taken elsewhere, and vice versa.

How can a cross-border structure be secured upstream?

Four approaches: (1) audit the French presence against both permanent establishment concepts, starting from the facts (who decides, where, with what resources); (2) document contractually the autonomy of service providers and subsidiaries: ownership of resources, decision independence, lack of authority to bind; (3) record the actual organisation, because a well-drafted contract does not protect against operational reality that contradicts it; (4) where appropriate, seek a ruling (French Tax Procedure Code, art. L. 80 B) to lock in the tax authority's position. This upstream investment is insignificant compared to the cost of a ten-year assessment with an 80% surcharge.

Can recent CJEU judgments call into question a characterisation already decided?

Not in the same case. In Conversant, the administrative court of appeal hearing the case after remittal remained bound by what the Council of State had finally decided on 11 December 2020: CJEU judgments handed down afterwards were not a new point of law allowing that point to be reopened (Council of State, 4 April 2025, n° 461220 and 461310). The decision does not settle every route for reviewing a tax that has become final, each of which has its own conditions. In practice, the Berlin Chemie test is argued to best effect in pending proceedings: during the audit, in the claim and before the court.

Does the ViDA directive change the VAT permanent establishment concept?

No. Council Directive (EU) 2025/516 of 11 March 2025 provides, for short-term accommodation rental (thirty nights at most) and road passenger transport facilitated by a platform, for a deemed supplier regime: the platform will be treated as receiving and supplying the service itself, unless the provider gives it its VAT identification and declares that it will charge the tax; each Member State may also exclude certain supplies made on its territory by providers under the small enterprise scheme. It must be applied between 1 July 2028 and 1 January 2030 and is not applicable today. This fiction does not require a permanent establishment of the platform to be characterised. For other flows, the Berlin Chemie, Cabot Plastics and Adient test remains the reference.

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Sources

  • Council Implementing Regulation (EU) No 282/2011 of 15 March 2011, art. 11 and 53
  • CJEU, 7 May 2020, Dong Yang Electronics, C-547/18; 3 June 2021, Titanium, C-931/19; 7 April 2022, Berlin Chemie A. Menarini, C-333/20; 29 June 2023, Cabot Plastics Belgium, C-232/22; 13 June 2024, Adient, C-533/22
  • Council of State, full fiscal bench, 11 December 2020, n° 420174, Conversant International; 4 April 2025, n° 461220 and 461310; 7 December 2015, n° 368227
  • French Tax Code, art. 209, 259, 283, 283-0 and 1728; French Tax Procedure Code, art. L. 66, L. 68, L. 80 B, L. 169, L. 176 and L. 193
  • Council Directive (EU) 2025/516 of 11 March 2025 (VAT in the digital age)

Cette note présente l'état du droit à sa date de publication et ne constitue pas un avis juridique. Chaque situation appelle un examen particulier.

© BENSAID Avocats. The information on this site does not constitute legal advice and cannot replace personalised tax analysis. The situations described for illustration are anonymised and do not constitute a guarantee of outcome.