The assessment of the tax regime can be delicate
To challenge the invoicing of services rendered by a person through a foreign interposed company article 155 A of the French General Tax Code provides that the remuneration of these services may be taxed in France in the hands of the person who provided the services especially when the services were provided in France.
The Conseil d’Etat has specified that the provisions of article 155 A are applicable when the invoicing by the interposed entity finds no real counterpart in its intervention that would allow the service to be considered as rendered on its behalf.
Among other practical difficulties, the tax treatment of the taxable income is frequently at stake.
The Conseil d’Etat has explicitly confirmed in a recent decision of November 4, 2020 (no. 436367), that the tax authorities must determine the category of income regarding the relationship between the person who provided the services and the beneficiary of these services. In this case, the Conseil d’Etat had also agreed that the tax authorities could oppose to the taxpayer the appearance that he had created, by retaining the existence of an employment contract between the taxpayer and the interposed entity.
In a recent decision of July 16, 2021 (n°433578) the Conseil d'Etat applied this solution to a taxpayer who was also the manager of the company receiving the services. The Conseil d’Etat held that, as the services rendered were not detachable from the manager's functions, the additional income – taxable in accordance with the provisions of article 155 A – was part of his remuneration and was falling within the tax category of salaries . Consequently, no occult activity could be characterized, resulting in the discharge of the relating penalties.
However, it is important to keep in mind the difficulties that may arise regarding the tax qualification of remuneration invoiced to a company for the activity of its managers, when those managers’ remuneration, as regularly approved by the company’s management bodies, does not explicitly and sufficiently refer to the elements invoiced by the foreign company.