Case Study: Permanent Establishment Risks
Quick Discussion Starters:
Read the urgent notice. Click the red words to learn them!
TO: Tax Department
RE: Unintended Taxable Presence in France
The French authorities are claiming we have a Permanent Establishment (PE) in Paris.
Our Sales Director, Mr. Sterling, has been working from an Airbnb there for 8 months. He claims he is just doing market research (Auxiliary Activity), which is generally safe.
However, investigators found emails showing he has the Authority to Conclude contracts. He recently signed the "Lumiere Deal" on behalf of the company while in Paris.
If they prove he is a Dependent Agent habitually exercising this authority, we will be liable for corporate income tax on all French sales.
1. Mr. Sterling's presence in France is definitely safe because he is in an Airbnb.
2. "Auxiliary" activities (like marketing) usually create a Permanent Establishment.
3. The main risk is that he signed a contract binding the company.
Choose the right word to set legal boundaries.
1. We are safe ________ he has authority to conclude contracts.
Meaning: Except if.
2. ________ his work is preparatory, no PE exists.
Meaning: On the condition that.
3. We should draft a policy ________ the authorities investigate further.
Meaning: Because it might happen (precaution).
Click words from the bank, then click the blanks to fill them in!
Subject: Re: Inquiry into Activity of Mr. Sterling
Dear Inspector,
We acknowledge your inquiry regarding a potential in France.
We maintain that Mr. Sterling does not have a of business. His use of temporary accommodation was transient.
Furthermore, his primary role was to terms, not to finalize them. He did not have the authority to contracts independently.
His activities were of a or auxiliary nature. Therefore, there is evidence of habitual contract signing, no tax presence exists.
Sincerely,
Global Tax Counsel