Tax implications for your international business operations in France

In the aftermath of Brexit, numerous US-based companies have looked at other European countries for their international business operations. France, as one of the biggest markets in the EU, is an important option. Different countries, however, come with different regulations (even within the EU), so it’s good to stay informed about the changing legal landscape in different jurisdictions.

We have noticed an increase in tax audits of international subsidiaries of US companies, so we thought it might be helpful for those of you operating in France to be aware of these changes so that you can prepare your company accordingly. Find out what you need to be aware of when you have, or plan to have, any business operations in France.

Who is targeted?

By its very nature, an international company is prone to complicated tax structures. It doesn’t mean France sees an international subsidiary as the ‘bad guy’, but it simply means you’ll need to have your tax ducks in a row. In our experience, the main targets for the French tax authorities are international companies’ French subsidiaries or branches that act as service providers or even certain types of reseller. We’ve also found that multinationals that only have a representative office in France are targeted by the French tax authorities. France has traditionally been amongst the leading countries proactively working with the OECD to fight against base erosion and profit shifting (BEPS). Consequently, most of the actions included in the latest BEPS report have been enacted in France. This is nothing to be alarmed by, as long as you are aware of the risks you can prepare for them.

What can you expect?

In addition to the tools provided by the OECD, the French tax authorities also seem to have rediscovered certain long-standing procedures, including the search and seizure procedure, meaning the physical inspection of your subsidiary’s premises. While the annual global number of search and seizure procedures is slightly decreasing, we have noticed that more and more often this procedure is launched against foreign multinationals with subsidiaries or branches in France. These ‘dawn raids’ (as they are typically carried out first thing in the morning) are usually followed by the French tax authorities launching a formal tax audit of the permanent establishment in France, based on the information collected prior to these procedures.

In addition to the tax risks triggered by these procedures, multinationals can also face criminal charges in France, such as tax fraud or laundering the proceeds of tax fraud. Google and McDonald’s are amongst the companies that have faced dawn raids in France. This obviously doesn’t mean that when you are subjected to a dawn raid you’ll end up in jail. A dawn raid, as daunting as it sounds, will not pose any problems if you are compliant with international and French tax regulation.

What to do?

Just as with Brexit, Osborne Clarke’s advice is not to be afraid of international legal risks or changes in a country in which your company operates. As long as you are aware of the risks and the steps your company needs to take to mitigate them, you can remain focused on growing your business overseas. With regard to the increase in dawn raids in France, foreign companies having subsidiaries and branches in France should carefully review their potential risk exposure. US companies may wish to consider training their employees on implementing best practice in order to limit the risks of a potential dawn raid in France as much as possible.

If you have any questions about the search and seizure procedure, or about your French subsidiary or branch, please contact one of our experts.