In other words, in which situations must a company pay tax in France?
The principle is fairly simple. Article 209 of the French General Tax Code (Code général des impôts, CGI) lays down a key principle in the field of international corporate taxation: the principle of territoriality.
In practical terms, if a company carries on business on French territory, it is liable to corporate income tax (impôt sur les sociétés) in France.
The question that then comes to mind is: what is meant by business in France?
The answer is quite clear: business means the presence of material and human resources.
For example, employees working in offices located in France will, in principle, be regarded as carrying on business in France.
Employees / premises is the classic pairing that will make a company taxable in France, even if its registered office is not located there.
Let us take a very simple example: imagine a company whose registered office is in Berlin, Germany, and whose business is quick-service restaurants (fast food).
This company already owns about ten restaurants in Berlin and wishes to expand its business into France.
It rents premises in Paris, has equipment installed there (fryers, tables, counters…) and hires 5 employees in this new establishment.
This company is not French; it is German (its legal seat is in Berlin).
Furthermore, it has not set up a company in France (for example, a subsidiary).
However, since it has material resources (premises, equipment) and human resources (employees) in France, it will be taxable in France on the profits generated by its Paris fast-food restaurant.
Another very simple example: two French friends have a brilliant idea! Without wasting any time, they rush to the registry of the Paris Commercial Court (greffe du tribunal de commerce de Paris) and set up their company. Back home, they start thinking about how to actually roll out their business.
After studying the market, they realise that their business would be much more profitable in Belgium, as they identify very few competitors in their market in that country for the time being.
They then decide, without a moment’s delay, to move to Belgium, where they rent their first office and set to work with great energy.
Their company is French, but it has no material resources (the offices are in Belgium) or human resources (our two friends work in their office based in Belgium) in France; it is therefore not taxable in France.
As you will now have understood, a company’s nationality has no impact on its tax regime. The concepts presented above are very brief. Of course, every case is different and the assistance of a tax lawyer will very often appear necessary.
International taxation taxes companies where they actually carry on their business.
Fortunately so, because international taxation understood long ago that taking a company’s nationality into account would be a tax heresy.
Just imagine: all companies would then be registered in tax havens and would operate in France without paying any tax, because they were not of French nationality.
Of course, there are many complex cases in the field of international taxation.
These complex cases are sometimes governed by international tax law: international tax treaties, international law deriving from the European Union, the commentaries on the OECD Model Convention, or case law.
However, in many cases, the specific situation facing the tax lawyer will require them to make interpretations.
In case of doubt, it is strongly advisable, on this type of question, to submit a request for a tax ruling (rescrit) to the tax authorities (a formal position taken by the tax authorities on your specific situation). This will allow you to secure your position in the event of a subsequent tax audit.
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