Permanent Establishment PE in France: risk and avoidance solutions


permanent establishment in france

Permanent Establishment PE in France: risk and avoidance solutions


The definition given by the OECD (article 5, Model Convention) for a PE Permanent Establishment is: ‘’ The term Permanent Establishment means a fixed place of business through which an enterprise carries on all or part of its business ‘’.

It can be a head office, a workshop, a factory, an office, a construction site, …


In France, since 2020, a Permanent Establishment for Corporate Income Tax (CIT) is characterized as soon as one has:

– a fixed place of business,

– or a dependent agent.

I 1/ Fixed business installation

An installation is considered as fixed, as soon as it presents a certain degree of permanence, of temporal and geographic fixity.

On a practical level, the French Tax office will retain a duration of more than 6 months to meet the concept of permanence.

The establishment in France must carry out an activity related to the activity of the main establishment abroad.

The premises rented or owned in France (or the employee’s home if teleworking), must be available to the company where the activity is carried out on a regular and continuous basis.

Concerning teleworking, as soon as it is imposed by the employer (who does not make an office available to the employee), the risk of a permanent establishment of the employee’s home is high.

I 2/ Agent

An agent is a non-independent person (salaried or non-salaried) who usually exercises in France powers enabling him to engage the company in a commercial relationship, relating to operations constituting its own activities.

France now applies without reservation (since the arrêt du Conseil d’Etat du 11 décembre 2020 n°420174) article 12 of the OECD Multilateral Instrument with the following consequences:

  • Even if the agent in France does not formally conclude contracts on behalf of the foreign company, the Permanent Establishment is constituted as soon as the agent in France plays the main role and decides on transactions that the foreign company limits itself to ratifying, and which thus ratified engage this foreign company.
  • The simple signature of the foreign company is then automatic, leaving the power of negotiation to the agent at the place of marketing of the product.


For the OECD, a permanent establishment is characterized for VAT, as soon as one has the human and technical equipment, with a sufficient degree of permanence, able to make possible autonomous supplies of services.

This excludes fictitious establishments such as domiciliation and mailboxes.

A characterized Permanent Establishment means that the foreign company must register for VAT in France.

If France only provides services to the foreign company, which is not a separate legal entity, these services do not fall within the scope of VAT. Therefore, to recover the VAT incurred in France, the foreign company must follow the 8th/13th Directive procedure.

If the establishment in France also performs (in addition to the services provided to the foreign company) taxable transactions with third parties, the French Administration authorizes that all deductible VAT be refunded under the conditions of French common law (i.e., by the French Administration to the French establishment).


As soon as a Permanent Establishment is established, the TS (Tax on Salaries) can be due.

The Liaison Offices (representation offices) are excluded from the liability to payroll tax.

Branches that only provide services to the foreign headquarters/entity/establishment are also exempt from payroll tax.

Branches, on the other hand, which generate turnover with third parties, must calculate a pro rata VAT. In this case, the payroll tax is due as soon as the branch is not subject to VAT on more than 90% of the income (on a technical level, income from internal services of the same legal entity can be included in the numerator and denominator because the French Administration allows the possibility to consider these revenues under a VAT regime as if the main establishment abroad was a third party).


The following activities (limitative list) allow to avoid the risk of reclassification as Permanent Establishment:

  • Product showrooms only,
  • Storage only,
  • Delivery of goods belonging to the company,
  • Purchase (only) of goods,
  • Research of information for the company,
  • Contract work for a third party,
  • In general, preparatory or auxiliary operations,


The French Administration carries out tax investigations and searches following an order issued by the Judge of Freedom (art L16B of the LPF). The penalties to be expected following requalification as a Permanent Establishment for corporate income tax purposes are:

1/ Automatic taxation

The procedure of automatic taxation reverses the charge of proof on the taxpayer. It is up to the taxpayer to demonstrate (even though – in theory – he does not keep books / accounting) that he has not realized the turnover and the profit alleged by the tax authorities.

V 2/ Recovery period

The tax recovery period in France is three years. However, in case of requalification as a Permanent Establishment, the recovery period is 10 (ten) years (art L176 of the LPF for VAT, and art L169 of the LPF for CIT).

V 3/ Penalties

The automatic increase is by 80% of the amount of the automatic taxation assessment (art 1728 1.c. of the CGI) for occult activity.

V 4/ Example

Let’s assume two employees costing 4,000 euros each gross + charges per month (8,000 for two, 96,000 per year, 960,000 for 10 years). If the Administration assumes that the Establishment must charge twice the salary cost to be profitable:

Turnover                      1,920,000

Expenses                        960,000

Taxable income               960,000

I/S 25% + Penalty 80%

Automatic taxation      432,000 euros

Feel free to ask your Chartered Accountant for a risk assessment of your specific situation regarding Permanent Establishment in France, we are here to assist.




+33 675 900 340