France clarifies ten-year assessment period for undeclared cross-border activity

Hidden activity can open a ten-year period

Article L169 of the Livre des procédures fiscales (LPF) generally gives the tax authority until the end of the third year after corporate income tax becomes due, but extends the period to the end of the tenth year where a taxpayer carries on hidden activity. Article L176 applies the same three-year and ten-year structure to VAT, calculated from the year in which the tax became chargeable. Hidden activity is presumed where required returns were not filed on time and the activity was not notified through the prescribed registration channel, or where the activity was unlawful.^[1][2][3]

The case concerned a Spanish company that notified a French permanent establishment in January 2014 with activity starting on 1 February 2014. Following an audit, the French authority treated activity from 2008 to January 2014 as hidden and raised corporate income tax and VAT assessments with penalties. The company argued that it had mistakenly declared and paid tax in Spain.^[1]

Actual liabilities matter, not headline rates alone

The Conseil d’État held that a taxpayer may rebut the hidden-activity presumption by establishing an error that justified its complete failure to meet French filing obligations. Where the taxpayer says it complied in another state, all the circumstances must be considered, including the foreign tax burden and information-exchange arrangements. The lower court was entitled to compare the corporate income tax and VAT actually paid in Spain with the amounts due in France, rather than comparing headline rates alone. It could also consider that non-declaration reduced French social-security contributions connected with the activity.^[1]

The Court also noted that the France–Spain tax treaty did not provide for VAT information exchange, but rejected the argument that the lower court had assumed no other administrative-cooperation mechanism existed. Given the other circumstances supporting its decision, that challenge was ineffective. The Conseil d’État dismissed the appeal.^[1]

The ruling interprets the procedural rules

Decision No. 509255 is a judicial interpretation, not a statutory amendment, and therefore has no separate commencement date. It applied the LPF wording relevant to the 2008–2014 periods; current Articles L169 and L176 retain the core three-year and ten-year mechanism, although registration wording has since changed. MNE groups cannot assume that foreign filing and payment alone prevent the extended French period. The judgment addresses whether non-compliance can be justified as an error; it does not establish a new test for whether a French permanent establishment exists.^[1][2][3]