If the answer to these questions is the company hosting the intra-group secondment, then it should be able to avoid the risk of being deemed a permanent establishment of the source company. Beyond the risk of permanent establishment status, this situation also illustrates the difficulties encountered in terms of transfer prices.
However, given that employees could be posted short-term a single financial year, for example , and that they could be there at different times, the impact on the functional analysis would be only temporary. The question faced by international groups is therefore whether their transfer pricing TP policy should be changed every time key employees are deployed and how to assess this impact in respect of the length of the secondment.
These TP issues are even more complex as they are linked to project financing issues the notion of local participation to be taken into account and to issues related to the transfer of knowledge and technologies from the key employees managing the project.
In this case, the functions and decision-making powers required to manage and bind the foreign company should be structured in such a way as to avoid the qualification as a dependent agent. In France, the Supreme Court has ruled, in its December 11 judgment on the Conversant case related to the application of the Franco-Irish agreement, that the power to set models, negotiate and have an impact on the conclusion of contracts could lead to being qualified as a dependent agent, despite the existence of a subsidiary where the employees carried out their duties.
This situation would have the same consequences in terms of TP as described above, but in this scenario the implications would be more significant given that the activity carried out by the key person would make an additional contribution to the subsidiary, thus leading it to perform functions outside its normal business activities and creating a higher value added that would affect its functional profile.
This change could therefore have an impact on its remuneration, but especially on the amount of profit to be attributed to this subsidiary, which would, as a result of this new activity, become a co-entrepreneur even though it had previously only carried out routine activities. Frequently, for large-scale projects, several international groups collaborate to fulfil project requirements and complete them jointly through a consortium or joint venture.
In principle, in the case of several independent groups, TP rules do not apply; instead, companies freely decide among themselves how to allocate the profits or losses that are generated. However, in the case of a project executed jointly by all of the companies, the international mobility issues and tax implications risk of permanent establishment and TP remain relevant and are more complex than in the case presented above, where a single group executes the project.
In this type of structure, one company is usually identified as the leading partner and acts as the authorised representative of the group and manages and supervises work, for example, either from the foreign company or through a local structure set up for this purpose. The issue will therefore be with the role of the persons acting as project managers at the local structure and with their interactions with the other employees, in particular the employees of companies in the consortium.
If the person acting as a project manager on behalf of the company acting as project leader controls the employees of another company that is a member of the consortium at the local work site, then this could lead to the other company being deemed to have a permanent establishment, and the rules presented above related to intra-group secondment would not apply. Companies that are members of a consortium cannot apply the rules governing intra-group secondment employee seconded to a group subsidiary or service secondment employee seconded directly to a client that apply to independent companies.
When needing to post employees to a local work site, these companies find themselves in a complex situation where they incur a high risk of acquiring permanent establishment status and where TP regulations do not apply. In a context where international projects require an increasing amount of varied and specific technical experience, and where skills must be provided by several groups, would it not be reasonable to introduce a new way of seconding employees?
Click here to read the TP Special Focus guide. Cyril Maucour is a tax partner at DS Avocats. He is known for his expertise in international taxation and TP matters, and regularly advises French companies in their international operations and assists foreign groups in their activities in France. Cyril is often involved in the structuring and documentation of their cross-border operations.
He advises multinational companies, as well as small and medium-sized companies. He is active in project financing, project development and infrastructure construction. Jessica Benchetrit is a senior associate with DS Avocats. She joined the firm in and regularly works on international taxation and TP issues.
That higher threshold is commonly referred to as a permanent establishment PE. Following is a brief discussion of the rules that govern the determination of PE under generic treaty language. Typically, a tax treaty defines a PE using the following two general tests:. However, a specific treaty should always be examined for exceptions or differences from standard language. Under the first prong of the PE test outlined above, a corporation must operate in a target country through a fixed place of business to create a PE.
A fixed place of business has been defined to include the following types of physical locations:. However, there are exceptions to these general types of locations that do not constitute a PE for treaty purposes. The exceptions are as follows:. Based upon the foregoing, a corporation has many options for doing business in a target country without triggering a PE for treaty purposes.
The analysis is highly fact-specific for each case, and the treaty language may vary depending upon the two countries involved in the analysis. A PE may also be created in a target country if a corporation operates in that country through a dependent agent.
Section 1. Included among the targeted arrangements are arrangements through which taxpayers replace subsidiaries that traditionally acted as distributors by commissionaire arrangements. Existing Client? Enter the code:. Our Team. Jason B. Matthew Roberts.
TL Fahring. Greg Mitchell. Jack Ormond. Zachary Montgomery. Fernando Juarez. Larissa Mussi. Kathy Donalds. What Sets Us Apart. Bankruptcy Attorney.
0コメント