On December 11, 2020, the French Supreme Administrative Court (the Court’), sitting in tax ‘‘plenary’’ formation (the four chambers specialized in tax matters sit together when the Court rules on questions of principle, both complex and technical), issued a ruling in Conversant/ValueClick The Court addressed whether an Irish company, ValueClick International, which operates in the digital sector and benefits from services rendered by ValueClick France, a local company in its group, has a permanent establishment in France for purposes of corporate income tax (CIT) and value-added tax (VAT).

While the debate on taxation of the digital economy continues at the national and international levels (compare the rise of unilateral digital services taxes with the OECD’s efforts around Base Erosion and Profit Shifting (BEPS), Pillars 1 and 2, and implementation of multilateral instruments), the Conversant/ValueClick case relates to the application of traditional tax rules outside this debate.

The Court sets out principles that broadly interpret treaty provisions and take an innovative approach to European Union law regarding the characterization of fixed establishment for VAT purposes. While the Court’s decision is less favorable than earlier decisions of French courts on PE matters, these cases highly depend on a case-by-case factual analysis.

Originally published in Bloomberg's Tax Management International Journal

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