Swiss address, French tax: the trap to avoid

An address in Switzerland, registration in the commercial register, invoices issued from a Swiss company: for an SME active on both sides of the border, these elements are not always enough to shift taxation out of France. A case commented on by Deloitte Société d'Avocats strongly reminds us: when an activity is actually managed and operated from France, the French tax authorities can seek a hidden permanent establishment, even if the company is registered in Switzerland.

For Swiss executives, the self-employed and their fiduciaries, the subject is not theoretical. It concerns how to document the activity, organise contracts, locate decisions, keep accounts and anticipate audits. The question is not only: where is the company’s address? It is especially: where are the human resources, premises, decisions and operations that create the profit?

The Toulouse case that puts substance at the centre

In the case mentioned by Deloitte Société d'Avocats, a company registered in Switzerland, active in the brokerage and transport of agricultural raw materials intended for animal feed, was audited in France for the years 2013 to 2015. The audit followed a domiciliary visit conducted at the home of its representative in France based on Article L. 16 B of the French Tax Procedures Book. Legal, commercial, tax, accounting and banking documents were seized there.

Based on these elements, the French tax authorities considered that the company had a permanent establishment in France. It was therefore subject to additional corporate tax and CVAE contributions, with an 80% increase for hidden activity, according to the summary published by Deloitte Société d'Avocats. The company argued, for its part, that it did not have a permanent establishment in France but in Switzerland, notably highlighting the Swiss location of its main clients.

The Administrative Court of Appeal of Toulouse did not follow this argument. It held that the company did not produce sufficient elements to establish the permanent nature of its activity in Switzerland, while the main indicators of operation were in France. The court therefore confirmed the existence of a French permanent establishment and the liability to corporate tax under Article 209 of the French General Tax Code.

For a Swiss company, the message is clear: domiciliation and clientele are not everything. The tax authorities look at operational reality. If client files, negotiation, management, banking or commercial functions are decisively linked to another State, the structure can be challenged.

Swiss domiciliation: useful, but insufficient without real activity

In Switzerland, domiciliation corresponds in practice to the legal address of a company. It may be essential for registration and official correspondence, especially when a company uses an address with a service provider or fiduciary. But it does not, by itself, indicate where the economic activity is actually carried out.

The notion of a permanent establishment is based on a different logic. Article 4, paragraph 2, of the Federal Law on Direct Federal Tax defines a permanent establishment as a fixed installation where all or part of the activity of a company or a person exercising a liberal profession is carried out. The research file recalls that this approach is consistent with the criteria of the OECD Model Tax Convention: a fixed place of business, a certain permanence and the exercise of significant commercial or technical activity.

In other words, a real office, employees, work tools, management meetings, decision-making capacity and ongoing activity weigh more than a postal address. A simple mail reception location does not necessarily demonstrate that the profit is generated in Switzerland. Conversely, a foreign company that has a fixed installation in Switzerland where a substantial part of its activity is conducted may create a Swiss tax link.

The difficulty for SMEs comes from the fact that modern organisations are rarely perfectly simple. A founder lives in France, a company is incorporated in Switzerland, clients are spread across several countries, accounting is outsourced and exchanges are conducted remotely. This operation is not in itself illegal. But it must be coherent, documented and aligned with tax declarations. A fiduciary should not limit itself to the address: it must also understand where the activity takes place and what evidence exists to establish it.

France-Switzerland: the convention avoids double taxation, not fragile arrangements

Switzerland has concluded more than 100 double taxation conventions, including the one with France, signed on 9 September 1966 according to the research file. These conventions aim to allocate the right to tax between States and reduce double taxation. However, they do not transform a formal domiciliation into a real economic presence.

In practice, when a State considers that a permanent establishment exists on its territory, it seeks to tax the share of profit attributable to this presence. The debate then focuses on the facts: who concludes the business, where decisions are made, what means are used, who bears the risks, where documents are kept, which people act for the company and with what authority? For an executive, these questions may seem administrative. In a tax audit, they become central.

The commented case also shows that the argument of clientele is not always decisive. Having Swiss clients can support the existence of an activity in Switzerland, but it is not enough if the actual operation is elsewhere. A company can sell to clients located in one country while being directed, managed and operated from another. The tax analysis seeks to link the creation of value to the place where it is concretely realised.

The risk of a hidden permanent establishment is particularly sensitive when the activity has not been declared in the State claiming it. The qualification can lead to tax reassessments, penalties and complex discussions on the attribution of profit. For an SME, the impact can go beyond the tax bill: mobilisation of management, advisory costs, uncertainty on annual accounts, cash flow tensions and possible corrections to explain to banks or investors.

Accounting, contracts, salaries: evidence is prepared before the audit

International taxation is rarely won with a theoretical organisation chart. It is documented in daily documents: contracts, minutes, emails, invoices, bank statements, agendas, leases, travel receipts, personnel files and accounting entries. These elements must tell the same story as the legal structure.

For a company claiming to conduct its activity in Switzerland, the fiduciary must be able to verify if this claim is reflected in the accounting and organisation. Do the premises expenses correspond to actual use? Are the salaries or fees of key people consistent with the functions performed? Do travel expenses show regular or only occasional presence? Do the contracts clearly indicate who acts on behalf of the company and from which location? Are important decisions made and kept in a traceable manner?

Separate accounting may become necessary when a permanent establishment is recognised, in order to determine the taxable profit in the concerned country. In Switzerland, profits attributable to a permanent establishment are subject to direct federal tax; the research file cites a rate of 8.5% for direct federal tax, to which cantonal and communal taxes are added, with levels varying according to location. For a foreign company present in Switzerland, this tax link therefore requires a sufficiently detailed accounting approach. For a Swiss company challenged abroad, the same logic applies in the other direction: it must be able to isolate what truly belongs to each territory.

Construction sites and technical activities deserve particular attention. The research file indicates that a construction or assembly site can constitute a permanent establishment when its duration exceeds 12 months. Before sending teams on a cross-border project, it is prudent to examine the duration, nature of services, powers entrusted on site and potential tax or social obligations. The same caution applies to a salesperson, executive or consultant who works regularly from abroad for a Swiss company.

Structuring a credible Swiss presence, without overpromising

For an SME or an independent, the right answer is not necessarily to complicate the structure. It first consists of aligning the legal, operational and fiscal aspects. If Switzerland is truly the centre of activity, the means in Switzerland must be visible and proportionate: a comprehensible address, localised functions, documented governance, coherent banking and contractual flows, as well as accounting capable of justifying the origin of the result.

If, on the contrary, part of the activity is conducted in France or another country, it is better to identify it early than to discover it during an audit. This may lead to analysing the possible existence of a permanent establishment, reviewing intra-group contracts, organising documentation of functions and risks, or seeking targeted tax advice. The issue must also be monitored over time: a model valid at launch can become fragile when the team grows, an executive moves or a foreign market becomes predominant.

The French case also contains a procedural lesson. Deloitte notes that the court distinguished a possible irregularity affecting a notice of recovery from the tax debt itself: according to the summary, such an irregularity may affect the enforceability of the title, without necessarily erasing the tax procedure or the claim, subject to applicable deadlines. For an executive, this means that a formal defect does not replace a solidly documented substantive defence.

Domiciliation in Switzerland remains a normal business tool. But when it serves as a façade for an activity conducted elsewhere, it exposes the company to heavy litigation. The boundary between effective organisation and tax risk depends on the facts, not just the statutes. This is precisely where the fiduciary has a strategic role: asking the right questions before the tax authorities ask them instead.