A fixed place of business is a concept used in tax law to define a location where a company carries out an economic activity in a stable and permanent manner. This may include premises such as offices, factories, or stores. The importance of this definition in tax law lies in the fact that it makes it possible to determine the tax jurisdiction competent to tax the income generated by this activity.
A fixed place of business is based on a very specific definition that meets several criteria. This definition is therefore based on
the following criteria:
-There must be a
place of business, that is, elements at the company’s disposal, such as premises, tools, equipment, a location, etc.;
-The place of business
must be fixed. This means that it must have a permanent installation in a specific location and therefore cannot exist on a purely temporary basis. However, the assessment of whether the place of business is fixed must take into account the characteristics of the activities concerned. Thus, a short-term installation may qualify as a permanent establishment if the brief duration of its existence is due to the specific nature of its activities or to poor results that could not have been anticipated;
-The place of business must have an
activity of its own, which normally implies the presence on site of the company’s personnel; it is therefore not an activity that has been delegated to another company.
This concept of a fixed place of business is of limited interest when discussing international taxation between several countries. It is more appropriate to address the concept of carrying on business in France in order to determine the profits earned in France by a foreign company.
First of all,
Article 164 B-I of the French General Tax Code specifies that
income from business carried on in France is subject to income tax in France, even when it comes from a foreign company. According to consistent case law, business is carried on in France when there is the regular exercise of an activity:
-Through an
autonomous establishment;
-Through
representatives without independent professional status (and therefore dependent);
-Through transactions forming
a complete commercial cycle.
The autonomous establishment
First of all, for the tax authorities to characterize the regular exercise of an activity, there must be a company based abroad (the United Arab Emirates, for example) that operates an “establishment” in France.
To better understand the concept of an establishment, it is first necessary to define what an establishment is. This is precisely what the international tax treaty (ITT) between the United Arab Emirates and France seeks to do in
Article 4A, which adopts the definition established by the Organisation for Economic Co-operation and Development (OECD) in its
Article 5.
Accordingly, the following are presumed to constitute establishments:
-The head office of a company;
-A factory or manufacturing workshop;
-An office, purchasing or sales counter;
-A branch, store, or agency;
-A mine, quarry, or any other place where natural resources are extracted;
-A construction site requiring significant, continuous, long-term work, as well as technical decision-making by managers located at the site.
For the establishment to subsequently qualify as permanent, the following are required:
-The existence of a professional organization (any production or exchange unit forming a coherent whole, capable of pursuing specific economic objectives determined at the operating headquarters that normally generates profits);
-The installation must have a certain degree of permanence in French territory;
-It must
have its own autonomy.
For an establishment to qualify as autonomous, it must in turn be characterized by several elements, including the presence of:
-Separate personnel or a specifically delegated employee;
-Its own commercial, financial, or technical services;
-Accounting separate from that of the head office;
-An operational decision-making center.
Representatives without independent professional status
Another way of characterizing a fixed place of business in France is:
-The presence in France of a representative who is dependent on the principal abroad. Accordingly, VRPs (sales representatives) who have a certain degree of independence in performing their duties are excluded from this category. The agent representing the establishment abroad must therefore be sufficiently dependent on the actual head office. One indication of this dependence is the employer’s ability to sanction the agent representing the company’s interests in France;
-In addition, the representative must be authorized to negotiate and sign business contracts in place of the management body;
-The agent’s presence must be stable, meaning that it must not be a temporary assignment;
-Finally, through their duties, the agent representing management’s interests must contribute to carrying out the activities that themselves characterize the fixed place of business. In short, the representative’s activity must not be unrelated to the activity that constitutes the very essence of the fixed place of business.
Regarding the complete commercial cycle
Even if it has neither an “establishment” nor a qualified representative in France, a company whose head office is located abroad must be regarded as regularly carrying on an activity in France when the transactions it carries out there form a “complete commercial cycle.”
For example, French administrative judges have held that “a foreign company that resells in France goods that it purchased there directly (or through representatives having no separate legal personality from its own) is liable to tax in France, even if it has no establishment there” (
CE, decision of May 22, 1963, No. 46870, RO p. 340).
This demonstrates that a fixed place of business, on the one hand, and income from business carried on in France, on the other hand, such as an autonomous/permanent establishment and representatives without independent professional status, are not the only means available to the French tax authorities to tax a company’s income. The mere fact of having a complete commercial cycle in France also authorizes the tax authorities to tax that income.
Two methods of taxation in France
In conclusion, there are therefore two methods of taxation in France. A fixed place of business refers to a company already established in France but not characterized as such for tax purposes, whereas carrying on business in France mainly refers to a foreign company that earns income in France.
Merritt Group
