Managing a company registered abroad from within France can be costly for the taxpayer—analysis of the recent ruling by the Paris Administrative Court (Paris Administrative Court of Appeal, 11 December 2024, No. 23PA01641, Sté Anotech Energy Global Solution Ltd).
On the use of the notion of “centre of effective management”
The French tax authorities increasingly rely on the “centre of effective management” notion to challenge the registration of a company overseas and subject all its profits to taxation in France.
Indeed, the tax administration often resorts to inspections, either at the home of the foreign company’s French director or at the premises of its French subsidiaries or sister companies.
Through these inspections and controls, the French tax authorities search for any evidence to prove that strategic decisions and the management of commercial, legal, fiscal, accounting, logistical, etc. affairs of the purported foreign company are carried out in France, thus asserting a right to taxing the company’s profits in France.
French case law, as defined by the Conseil d’État, describes the “centre of effective management” as the place where those holding executive positions or the highest-ranking individuals make strategic decisions that shape the conduct of the company’s business as a whole.
Based on this notion, in the case mentioned above, the French tax administration and the Paris Administrative Court of Appeal dismissed the company’s location in the UK and imposed all its profits in France in line with the notion of the “centre of effective management” after the following was established:
- The UK-based company had no actual substance: it was domiciled at the address of its accountant, with no employees.
- The directors were rarely present in the UK: the directors of the company located in the UK were all French tax residents, and all of their remuneration was paid by the French sister company, limited presence on British soil.
- Many documents relating to the management of the UK-based company were seized from the French company’s premises: contracts, invoices, accounting and legal documents, payroll slips, and official correspondence.
- Strategic decisions were, in reality, prepared and made in France: no evidence that the directors prepared meetings or made strategic decisions in the UK.
On the penalties incurred by the foreign company: 80% surcharge
Beyond the taxation in France of all the profits of the company registered abroad, French tax authorities consistently assert that the discovery of such activities constitutes concealed business that should have been declared, thus justifying the application of an 80% surcharge.
Indeed, the proof of concealed activity and the application of the 80% surcharge is justified solely by the foreign company’s failure to fulfil its tax declaration requirements in France, regardless of whether the omission was in good or bad faith.
However, it is possible to challenge this surcharge, except if the foreign company’s taxation in its registered state is significantly lower than it would have been in France.
Thus, for corporate groups with an international dimension, it is necessary to perform a detailed analysis to verify the validity of each company’s tax declarations to avoid facing substantial penalties in France.
Our experts are available to answer your questions and analyse your situation to ensure the conformity of your tax obligations in France.
