ValueClick - French Supreme Court finds that French staff who lined up the contracts (albeit “automatically” signed elsewhere) gave rise to dependent-agent PEs

ValueClick Inc., a US corporation, was one of the market leaders in the online advertising business. Its Irish subsidiary, ValueClick Ireland, had a staff of no more than seven employees, who were responsible for account management and sales of ValueClick services for the world outside North America. ValueClick Ireland established subsidiaries in local European jurisdiction, including in France (“ValueClick France”). The external contracts between ValueClick and French advertisers were formally entered into with ValueClick Ireland rather than ValueClick France. However, a staff of around 50 employees of ValueClick France was responsible for marketing to French advertisers as well as various administrative and support functions, and forwarded contracts to Value-Click Ireland for signing. The intercompany services agreement between ValueClick Ireland and ValueClick France provided that it did not create an agency relationship, and that it did not authorize one party to sign contracts in the name of the other party or to represent that party for the purpose of contractually binding it. ValueClick France was remunerated by Value-Click Ireland under the agreement on a cost-plus-8% basis.

The permanent establishment wording in the French-Irish Convention had the standard OECD wording respecting PEs constituted by agents of a non-independent status. In affirming the position of the French tax authorities that Value-Click Ireland had an agency PE in France, the Supreme Administrative Court stated that a French company could be considered to be habitually exercising the authority to conclude contracts in the name of an Irish company “if, on an habitual basis - even if it does not formally conclude contracts on behalf of the Irish company - it decides on transactions which the Irish company merely endorses and which, once endorsed, bind it.” The Court went on to state:

[W]hile the Irish company sets the model for the contracts concluded with advertisers in order to give them the benefit of the services it engages to be provided, as well as the general pricing conditions, the decision to conclude a contract with an advertiser and all the tasks necessary for its conclusion are the responsibility of the employees of the French company, with the Irish company merely validating the contract by a signature which is of an automatic character.

Neal Armstrong. Summary of [ValueClick case] FR: CE, 11 Dec. 2020, Case No. 420174 (Conseil d'État) under Treaties – Income Tax Conventions – Art. 5.