CROSS-BORDER TAX AUDIT ASSISTANCE IN THE SEARCH FOR PERMANENT ESTABLISHMENTS OF FOREIGN COMPANIES IN FRANCE
CASE STUDY #5
Issue: The French tax authorities need to identify all companies operating in France from abroad via the Internet in order to determine whether they qualify as permanent establishments, which has tax consequences, as highlighted in the recent Google France case law.
Legal issue: The client, a French services company operating solely via the Internet, has a subsidiary providing technical IT services for its site in Tunisia. As part of a search for permanent establishments of foreign companies in France, and because the client had been identified in the listing of a telephone company that was diverting money from subscriptions to offshore accounts, tax inspectors searched public data and carried out a tax search under Article L16B of the French Tax Procedures Book (LPF) for that Tunisian entity. Based on the information gathered in the course of the tax search, the tax authorities made an adjustment. In this case, the aim was to assist the client both during the tax search and afterwards during the tax audit of his company.
Challenge: To demonstrate that the client, through its IT services company in Tunisia, was not subject to a preferential tax regime, and to assist it in the context of a tax audit in a cross-border context. For this purpose, it was first necessary to prove the veracity of the company's incorporation in Tunisia, its existence and its activities. This was done by means of electricity, Internet and telephone bills.
An application for the search to be cancelled under Article L16 B was filed. This procedure has a number of advantages. First, it enables the client's arguments to be put forward in writing to the authorities, and second, it cancels all seizures of documents that cannot be produced in the course of the proceedings. If this search order was not cancelled, the search having taken place, messages may have been passed.
Solutions: The application to cancel the search was used as a basis to put forward arguments in the proceedings. The client had premises, human resources and equipment necessary for its operations in Tunisia and was in no way subject to preferential treatment.
It was thus demonstrated that there was no permanent establishment, since there was no fixed place of business or dependent agent in France. The tax authorities dropped all proceedings. See the article “Tax audit in France”.
