Sent in from Keith Lacey's website -
NORMANDY BRETAGNE & BORDERS
"Trading in France means paying in France"
Trading in France means paying in
France and here Mike Meade examines why this is so... and what might be in store
for those who are bending the rules.
Using the umbrella of an overseas company is a temptingly attractive workaround
to escape the considerable expense and continual red-tape involved with setting
up a French business. In spite of a somewhat tenacious rumour to the contrary –
and some dodgy advice from UK-based advisors — EU law only allows for trading
from overseas in specific and very limited situations. Let’s face it: if it was
perfectly legal and financially interesting to regularly trade here without
paying French taxes and social charges wouldn’t every beleaguered French
business opt to do just that?
Here’s why they don’t. Legally, you can only avoid French tax and social charges
if all of the following conditions are fulfilled:
1/ your French activity is secondary to your overseas one
2/ you do not have a “permanent establishment” in France
3/ you employ no one on French territory
4/ you conclude no contracts on French territory
5/ your activity in France cannot be deemed “continual”.
Right of establishment
The European Union website (http://citizens.eu.int) spells out in simple terms
the general rights of establishment provided for by the Treaty of Rome.“You have
the right to work as a self-employed person in any EU country, either
permanently or temporarily by transferring or creating your main centre of
personal and professional interests or by setting up a fixed professional
structure that is secondary to your main centre of activities.” ... “You are,
however, subject to the same rules in the conduct of your business as apply to
nationals of the country.”
Cannes-based lawyer Robert Floyd reminds us that this is perfectly clear:
trading in France means paying tax and social charges in France as well as
abiding by French labour regulations and consumer protection laws.
Business lawyer Jean-Michel Nogueroles, a founding partner of Artwell in Sophia
Antipolis, detailed out and commented on the relevant following points at a
recent meeting of the British Chamber of Commerce.
The notion of a “permanent establishment”.
The profits of a company incorporated in the UK are taxable only in the UK
unless this company carries on business in France through a “permanent
establishment” situated in France. A “permanent establishment” is a fixed place
through which business is wholly or partly carried on — a branch office, a
factory, a workshop (or a building site or installation project lasting more
than 12 months). In addition, a person, other than an independent agent, who is
acting on behalf of a UK company in France and usually exercises in France an
authority to conclude contracts in the name of this UK company is deemed to be a
permanent establishment of this UK company in France. In other words, it is
quite possible for a “person” to be considered a “permanent establishment” under
the terms of the law.
An "independent" agent having a French telephone line for professional use
should in principle be taxed on his commissions received in France. If such a
person is not truly legally independent or carries out most of his or her work
for one company based outside France (lack of economic independency) then we
return fully to the notion of "permanent establishment". Having a company phone
or fax made available to an agent in France can remove the notion of
"independent" and establish the notion of "permanent".
Trading “continuity” and “temporary” postings.
If there is continuity in the nature of the trading in France it is considered
that the company or person is therefore “permanently established” in France for
tax purposes. (When you order a book from Amazon UK, French TVA appears on the
bill. Amazon is deemed to carry out “continual” business in France, even when
orders for British books are processed through its UK-based website).
A UK resident working temporarily in France for a UK company is subject to
French social security laws by way of article 13 of EU regulation 1408/71
stating that a person employed on the territory of a member state is subject to
the social security legislation of that member state (even though he may be
resident of another member state). There are some exceptions (navigation, air
travel) or when the duration of the work does not exceed 12 months and the
employee is not deemed to be replacing another person who has completed his term
of posting (Article 14.1). But for these postings a foreign company must declare
in French language the employment of the posted employees to the Inspection du
Travail (for companies which are not interim placement agencies) or to the
Direction Départementale du Travail (for interim employment agencies).
In other words, under no condition is it legally possible to be employed or to
employ anyone on French territory without making a declaration to at least one
Yet an increasing number of people are doing just that.
DILTI is watching!
Robert Floyd points out that “the legal arsenal exists to combat
‘delocalisation’ both by virtue of the EU Treaty and bilateral treaties signed
between France and in particular the UK”. For one reason or another there has,
until now, been little political will to enforce the law. French officialdom,
however, has a habit of allowing situations to develop and then suddenly start a
tax or legal blitz on them.
While researching this article I concluded that is exactly what will happen
soon. A spokesman for DILTI (Délégation Interministérielle à la Lutte contre le
Travail llégal) recently told me that there will be a severe crackdown on
delocalised businesses who are not playing according to the rules. Jean-Michel
Nogueroles points out that the penalty can be up to 3 years in prison and up to
45,000 euro fine (not mentioning the payment of back taxes, social charges and
associated penalties for overdue payment).
As Clint Eastwood would say: “Is it really worth it, punk?”