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4.1. Foreign PE of a Domestic Entity

Under the limited territoriality system in operation in France, a French entity is not assessed to corporate tax in France on business profits realized through an establishment abroad (but is assessed to tax on passive income on a worldwide basis).

French domestic law does not use the terms permanent establishment, but “enterprises operating in France or abroad”. The law does not define the term “enterprises operating in France or abroad” but the same test used to determine whether a foreign company is carrying on taxable operations in France, could be used to determine whether the foreign activity of a French company falls within or outside the scope of French taxation.

On this point, case law refers to the habitual conduct of business through an autonomous establishment, a dependent agent or a complete commercial cycle. To that extent, the definition is not radically different from that of a PE elsewhere. The foreign activity must be continual and distinct and not a mere extension of the French head office’s business.