A permanent establishment is a fixed place of business through which a foreign enterprise carries on all or part of its business in France; the enterprise is also deemed to have one, subject to conditions, where a person acting on its behalf in France habitually concludes contracts, or habitually plays the principal role leading to their conclusion. It is the tax-treaty concept (article 5 of the OECD model) that sets the threshold above which France may tax the business profits of a foreign company; absent a treaty, French domestic law looks to the business carried on in France (French Tax Code art. 209, I). This page sets out the definition and the tests. To assess the permanent establishment risk in France for a given company and prepare its defence, the firm has a dedicated page.
Under tax treaties, a permanent establishment means a fixed place of business through which the business of an enterprise is wholly or partly carried on (OECD model, art. 5(1)). The term includes, in particular, a place of management, a branch, an office, a factory or a workshop. A building site or construction or installation project constitutes one only beyond a certain duration, twelve months in the OECD model, the exact period depending on each treaty.
Absent a treaty, French domestic law reasons differently: corporate income tax applies to profits realised in businesses carried on in France (French Tax Code art. 209, I), meaning the habitual exercise of an activity through an autonomous establishment, through representatives without an independent professional status, or through operations forming a complete commercial cycle (BOI-IS-CHAMP-60-10-10, § 60). The tax authorities themselves state that this domestic concept is close to, but not identical with, the treaty permanent establishment (same BOI, § 160), and that a treaty, where it applies, prevails over domestic law (BOI-IS-CHAMP-60-10, § 10).
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?
Two separate cases, and 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.
Never confuse the permanent establishment for corporate income tax purposes with the permanent establishment for VAT purposes.
The consequences of a characterisation (corporate income tax, VAT, withholding taxes, concealed activity) and the lines of defence are set out on the page dedicated to permanent establishment risk in France.
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.
Where the activity is characterised as concealed, three consequences add up: assessment by default without prior formal notice (French Tax Procedure Code, art. L. 66 and L. 68), a reassessment period extended to ten years for both corporate income tax and VAT (art. L. 169 and L. 176) and an 80% surcharge (French Tax Code art. 1728, 1, c). The characterisation requires that no return was filed within the legal deadline and, for a lawful activity, that the activity was not declared to the one-stop business formalities office; it falls away if the company shows an error justifying its failure to comply.
The defence addresses the very existence of the permanent establishment, then the attribution of profits (OECD model, art. 7), the concealed-activity characterisation and the elimination of double taxation. Typical situations, client profile and lines of defence: see permanent establishment risk 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. The firm is ranked Best Lawyers 2026 and Recommended in taxation of international groups by Leaders League (2026).
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.
It is a fixed place of business (office, branch, factory, place of management, building site beyond the treaty duration) through which an enterprise carries on all or part of its business in another State; the enterprise is also deemed to have one where a dependent agent acts there on its behalf. Where a tax treaty applies, France may tax the business profits of a foreign company only if it has a permanent establishment in France, and only on the profits attributable to it (OECD model, art. 5 and 7); other income (dividends, interest, royalties, real-estate income) in principle follows the treaty's specific articles, unless it is effectively connected with the permanent establishment.
No. French domestic law (French Tax Code art. 209, I) looks to the business carried on in France: an autonomous establishment, representatives without independent professional status, or a complete commercial cycle. According to the tax authorities, this concept is close to, but not identical with, the permanent establishment (BOI-IS-CHAMP-60-10-10, § 160). Where a treaty applies, its definition prevails.
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 (Conseil d'État, 11 December 2020, No. 420174) 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: the most frequent situations and the firm's approach are set out on the page dedicated to permanent establishment risk in France.
Related resources on international taxation, tax audits and foreign-company litigation.
Client profile, five typical situations, consequences of a re-characterisation and lines of defence for foreign companies.
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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. Sources: bilateral tax treaties, OECD model tax convention (art. 5 and 7), BEPS, Multilateral Instrument (MLI), French Tax Code art. 209, I and 1728, BOI-IS-CHAMP-60-10 and BOI-IS-CHAMP-60-10-10, French Tax Procedure Code art. L. 66, L. 68, L. 169 and L. 176. Editorial update: October 2026.
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