5. Business Presence Issues
A. How the Employment of One or More Individuals May Create a Permanent Establishment in France and the Related Consequences
From a French tax law perspective, employing one or more individuals in France may create tax exposure for a foreign company, even where the company has no registered office or physical place of business in France.
As a general principle, profits generated through activities carried out in France may be subject to French taxation. Accordingly, the presence of employees in France may, under certain circumstances, constitute a “permanent establishment” (établissement stable) for corporate tax purposes, potentially subjecting the foreign company to French corporate taxation and related reporting obligations.
B. How the Use of One or More Independent Contractors May Create a Permanent Establishment in France and the Related Consequences
Similar issues may arise where a foreign company operates in France through one or more independent contractors, particularly if the relationship is subsequently reclassified as an employment relationship.
In such circumstances, the tax authorities could take the position that the company has a permanent establishment in France, triggering the same tax consequences as if employees had been directly hired.
That said, the concept of a permanent establishment is primarily defined by applicable bilateral tax treaties and must be assessed on a case-by-case basis.
The Court of Justice of the European Union has defined a permanent establishment as a structure with a sufficient degree of permanence and appropriate human and/or technical resources enabling services to be provided on an autonomous basis (ECJ, 17 July 1997, Case C-190/95).
Similarly, the French Supreme Administrative Court (Conseil d’État) generally defines a permanent establishment as a business installation with a certain degree of permanence through which profit-generating activities are carried out with a degree of operational autonomy.
