A recent decision clarifies certain issues concerning permanent establishment status and more precisely the notion of dependent agent PE. In this particular case, a Swiss company commercialised its products in France through a commissionaire who was located there.
The French tax authorities alleged that the French-based commissionaire was a dependent agent of the Swiss company and thus characterised it as a permanent establishment of the Swiss company in France, on the ground of the France-Switzerland tax treaty, dated 9 September 1966. Indeed, in addition to an alleged dependency of the commissionaire on the Swiss principal, the French tax authorities considered that the commissionaire had, in particular, the authority to bind, within the framework of its activities in France, the Swiss company on behalf of which it proceeded in a business relationship relating to the latter's own activities.
On the dispute related to the reassessments charged to the alleged permanent establishment of the Swiss company, the administrative lower Court ruled that a "commissionaire cannot in principle constitute a permanent establishment of the principal, deriving only from the fact that by executing its commissionaire agreement it sells, while signing the contracts in its own name, goods or services of the principal on its behalf, except if it results from either the commissionaire agreement terms, or from any other elements of the instruction of the case that despite the qualification of commission given by the parties to the contract by which they are linked, the principal is personally bound by the contracts concluded by its commissionaire with third parties." This decision is in line with the Zimmer case-law (French administrative supreme Court, March 31st 2010, n° 304715, 308525, Sté Zimmer Limited).
In this particular case, the administrative lower Court noticed that it was not a result of the commissionaire agreement terms (including the payment by the principal of the commercializing fees and the fact that orders were subject to a “take-back” clause for unsold products) that the sales contracts concluded by the commissionaire would have personally bound the Swiss company toward third parties.
As a consequence, in the absence of characterisation of a permanent establishment in France, the Swiss company was released from all the tax reassessments as well as the related penalties.
Finally, this decision is particularly interesting because the Court also mentioned, contrary to the French tax authorities’ position, that in the event a principal would have "benefited from a favorable tax regime under Swiss domestic law, such a circumstance, assuming that it is demonstrated, does not affect the characterization of a permanent establishment under the provisions of Article 5 of the tax treaty between France and Switzerland."