The taxation of companies operating between France and Switzerland is based on a fundamental principle: the precise determination of their tax residence. This legal and economic criterion determines the taxation system, the division of tax powers between countries, reporting obligations and the risk of tax reassessment. In a bilateral context, where national legislation coexists with international treaties, tax residence cannot be defined without an in-depth analysis of the decision-making structure, the location of strategic functions and the organization of economic flows. The challenge is twofold: to avoid conflicts of tax territoriality and to optimize the overall tax burden, while complying with anti-abuse rules.
Criteria for granting tax residency
Under French law, a company’s tax residence is based primarily on two criteria: the location of its registered office and that of its effective management. The latter takes on an essential dimension: it designates the place where strategic decisions are actually taken and executed, independently of the registered office. Switzerland, for its part, applies a similar approach, also taking into account the nature of the activity carried out, the personnel structure and the internal organization.
In the event of a conflict of interpretation, the tax treaty between France and Switzerland attributes residence to the state where effective management is located. This notion implies a factual examination: frequency and place of meetings of management bodies, effective powers of directors, places where contracts are signed, domicile of directors. A company cannot be content with a theoretical registered office if its economic substance lies elsewhere. Any inconsistency between the legal form and the operational reality may lead to requalification.
Recognition of a permanent establishment in Switzerland or France
The permanent establishment is an international tax concept designed to identify those establishments that generate a sufficiently autonomous activity to justify local taxation. This may be a branch, an office, a warehouse, or the regular presence of an employee with bargaining power. Both France and Switzerland apply this concept, with their own specific features and heightened vigilance with regard to domiciliation fraud.
The existence of a permanent establishment has important tax consequences: taxation of profits earned locally, opening of a dedicated bank account, obligation to keep separate accounts, separate tax returns. In cross-border situations, the recognition or contestation of a permanent establishment is often based on criteria that are interpreted differently by different tax authorities, making a legal and factual analysis essential.
Practical consequences of a permanent establishment
When a company is deemed to have a permanent establishment in Switzerland or France, it is subject to specific tax, legal and accounting obligations. Among other things, it must register with the local authorities, produce separate accounts, declare its results and, where applicable, pay local VAT. Such structuring calls for rigorous organization and the implementation of reliable internal procedures to avoid any concealment or confusion between entities.
At the same time, tax authorities require detailed documentation on the allocation of functions, risks and assets. When it comes to transfer pricing, the level of vigilance is high: intra-group flows must be justified and reflect an economic reality. Any discrepancy between the declared distribution of profits and the actual substance of the business may be adjusted.
Secure upstream structuring
A company’s tax residence cannot be left to chance. It must be the subject of strategic reflection upstream, integrating tax, legal, operational and asset parameters. In a Franco-Swiss environment, it is important to build a coherent structure, in line with OECD standards in terms of economic substance and the fight against tax evasion.
This anticipation involves the formalization of management functions, the division of tasks between entities, the traceability of financial flows, and the assessment of tax risks. Robust documentation, supported by sound legal analysis, helps to secure the company’s position, avoid double taxation and limit the risk of disputes.
Tax advice for French-Swiss operations
BERGEOT PAOLI Associés puts its Franco-Swiss expertise at the service of companies wishing to secure their international structuring. We advise on issues of tax residence, recognition of permanent establishments, optimization of intra-group flows and compliance with the tax requirements of both countries.
Our approach is based on a detailed analysis of your organization, anticipation of tax risks and a defense strategy in the event of litigation. We work with local lawyers, chartered accountants and tax specialists to build tailor-made solutions, adapted to regulatory requirements and your development objectives. Thanks to our support, you can secure your locations and avoid the risks associated with misinterpretation of tax residency criteria.