Tax risk, international audit and reassessment. Whether a foreign company has a permanent establishment in France is now a central question of international taxation: it determines whether that company may be taxed in France on all or part of its profits, and it feeds a growing body of litigation as the tests for the dependent agent evolve, as the analysis turns to the economic role played in France in the conclusion of contracts, and as it becomes necessary to distinguish between a corporate-income-tax permanent establishment and a VAT permanent establishment.
In international taxation, the permanent establishment is the concept used to determine whether a foreign company may be taxed in France on the profits attributable to its French activity. Two levels must be distinguished: French domestic law, which reasons around the business operated in France, and tax treaties, which give precedence to the notion of permanent establishment.
Where a tax treaty applies, France may in principle tax the profits of a foreign enterprise only if that enterprise carries on its activity in France through a permanent establishment. The mere existence of income linked to the French market is not enough: a sufficient tax nexus to French territory is still required.
The analysis must always begin with the relevant bilateral treaty, the definition of permanent establishment adopted and the developments arising from the OECD model, from BEPS and, where applicable, from the Multilateral Instrument (MLI). The subject concerns international groups, digital structures, financing entities, service companies and any foreign enterprise operating in France without a formally acknowledged presence.
The first ground of characterisation: office, premises, construction site, infrastructure or physical presence displaying a certain degree of permanence.
The real battleground of litigation. The debate is no longer confined to the formal signing of contracts: who plays the leading role in their conclusion?
A shift in the centre of gravity: from the legal power to bind towards the economic reality of the role played in France.
A relative protection. Some functions do not characterise a permanent establishment, but the exception must be handled with caution.
Two essential distinctions: never confuse a CIT permanent establishment with a VAT permanent establishment, and anticipate the defence in the event of a reassessment.
The CIT permanent establishment is a mainly treaty-based concept that governs the taxation of profits (fixed place of business or dependent agent). The VAT permanent establishment is an autonomous concept of VAT law that determines the place of supply and the person liable (sufficient human and technical resources). A VAT registration in France does not, by itself, prove the existence of a permanent establishment within the meaning of the tax treaties — and the reverse is equally true.
Demonstrate that the treaty tests are not met: no fixed place of business, no dependent agent within the meaning of the Conversant ruling, or an activity limited to preparatory/auxiliary functions. This is the first line of defence.
If a PE is admitted, challenge the reconstruction method adopted by the authorities: attribution of functions, assets, risks and value. Significantly reduce the reassessment even where the characterisation is confirmed.
The authorities may seek to invoke a concealed activity in order to extend the reassessment period (10 years) and apply the 80% surcharge. The defence turns on the authorities' knowledge and the formal regularity of the operations carried out in France.
Maître François Ouairy, partner in charge of the Paris office, acts at three levels on the notion of permanent establishment: preventive audit (review of the international structuring, contracts, flows and French substance), assistance in international tax audits (preparation of responses, securing positions, alignment with the group's documentation), and litigation defence (challenging the principle of the permanent establishment, the role of the dependent agent, or the attribution of profits). Recognised by Best Lawyers® 2026 in Tax Law.
Three diagrams to visualise the main qualification tests, the role of the dependent agent and the tax consequences of a re-characterisation in the event of an international tax audit.
Yes. A subsidiary is not required. A fixed place of business or a dependent agent may be enough, depending on the applicable treaty and the reality of the operations.
No, not automatically. One must analyse their real role in the negotiation, decision and effective conclusion of contracts. The Conversant case law refocused the debate on economic reality, not the formal signature.
No. VAT registration is not, by itself, sufficient, either for VAT or, a fortiori, for treaty-based CIT purposes. These are two autonomous concepts.
Yes. The applicable tests are not identical and any automatic equation must be avoided. The VAT definition requires sufficient human and technical resources, whereas the treaty-based CIT definition rests on the fixed place of business or the dependent agent.
Commercial organisations where the French teams play a decisive role, commissionaire models, certain digital structures, construction sites and certain cross-border services.
Before a reorganisation, at the opening of an international tax audit, or as soon as a debate arises over the French substance, the dependent agent or the attribution of profits. The defence is built upstream.
Related resources on international taxation, tax audits and foreign-company litigation.
Non-residents, expatriations and returns to France. Tax treaties, withholding taxes, exit tax.
Voir la page Area of expertiseCompanies, groups, transfer pricing, cross-border operations and VAT permanent establishment.
Voir la page Recent articleHow to build your defence in a tax audit: choice of legal arguments, hierarchy of norms.
Voir la page Lead counselPartner in charge of international taxation, audit and litigation matters.
Voir la pageIf you are facing a permanent-establishment risk in France, an international tax audit or a reassessment targeting a foreign company, the firm can assist you with the analysis, the structuring of the defence and the challenge to the adjustments.
© BENSAID Avocats — The information published on this site does not constitute legal advice. Bilateral tax treaties, OECD model, BEPS, Multilateral Instrument (MLI), French Tax Code art. 209 I et seq. Editorial update: April 2026.
