• Territoriality – Characterization of fixed establishments for VAT purpose

Territoriality – Characterization of fixed establishments for VAT purpose

04 March 2021

David Hirsch, Attorney at law / PhD - Partner - VAT and Customs Law |

CE, 11 December 2020, Ass. Plén., Conversant International Limited (ValueClick)

Valueclick International Ltd, located in Ireland and whose corporate name is today Conversant International Ltd, exercises a digital marketing activity, through the intermediation  of sister companies, notably Valueclick France.

Valueclick International Ltd provides services called "Media", "Affiliate Marketing" and "Technologies".

Pursuant to a contract for the provision of services ("Intercompany Services Agreement") concluded between the companies of the group on July 1, 2008, the French company must provide the Irish company with the following services: marketing assistance consisting of acting as the representative marketing of Valueclick International, which includes but not limited to, identifying, prospecting and reporting potential customers to Valueclick International, ongoing management services and back-office support services, administrative assistance, including accounting, human resource management, information technology and treasury; in return, Valueclick France receives a Cost +8% remuneration.

The issue at stake was whether Valueclick France should be regarded as a fixed establishment of Valueclik International Ltd (Conversant International Ltd) in France. 

The High Court has adopted a position which is an extensive approach of the fixed establishment, from both a corporate income tax and a VAT viewpoint.

Focusing on VAT, the High Court has decided that the human resources and technical capability to give access to the marketing service sold by the foreign sister company, by creating and managing the clients accounts, were sufficient to characterize a fixed establishment, even if no data center used for the execution of the linking functions is located in France.

This ruling was rendered by the Conseil d’Etat “Assemblée Plénière”, the highest formation of the High Court. This will increase the tax exposure of international groups, which should review quickly their current structures.