We are glad to share with you a recent decision we obtained concerning permanent establishment issues and more precisely the notion of dependent agent PE. In this particular case, a Swiss company commercialized its products in France through a commissionaire who was located there.

The French tax authorities alleged that this commissionaire was a dependent agent of the Swiss company and thus characterized a permanent establishment of this company in France, on the ground of the France-Switzerland tax treaty, dated September 9th, 1966. Indeed, in addition to an alleged dependency of the commissionaire toward the Swiss principal, the French tax authorities considered that the commissionaire had, in particular, the authority to bind, within the frame 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.

Instructing 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 from the only fact that by executing its commissionaire agreement it sells, while signing the contracts in its own name, the 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 of 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, S Zimmer Limited).

In this particular case, the administrative lower Court noticed that it did not result from the commissionaire agreement terms (including the payment by the principal of the commercializing fees and the fact that orders were subject to “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 characterization 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 the 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".