Pursuant to Article 209 of the French General Tax Code, profits made by companies operating in France are subject to corporate income tax, as are those whose taxation is attributed to France by an international double taxation treaty.
Under tax treaties, and in particular the model provided by the Organisation for Economic Co-operation and Development (OECD), a person is considered to be resident for tax purposes in the State in which he or she has his or her domicile, residence, place of management, place of business or any other criterion of a similar nature.
However, where a legal entity may be considered resident in two States, it will be considered resident only in the State where, among other things, its place of effective management is located[1]. The characterization of a company’s effective place of management can therefore be decisive.
In this respect, the tax authorities define the seat of effective management (“SDE”) as :
” The place where the strategic management decisions and industrial or commercial policies necessary for the conduct of the company’s business are taken. The seat of effective management will normally be the place where the most senior person, or group of persons, (e.g. the Board of Directors) takes its decisions; however, determining the seat of effective management is a question of fact. A company can have several seats of management, but can only have one seat of effective management at a time[2]. “
What is an EDS?
This is the place where :
∙ the company’s strategic decisions are made,
∙ management bodies (board of directors, general management) meet effectively,
∙ day-to-day management is carried out.
As a matter of principle, the place of effective management is presumed to coincide with the registered office.
However, this presumption may be challenged in certain situations. For example: profits made by a company established abroad (i.e. whose registered office is located abroad) may be considered as taxable in France, provided that the company’s place of effective management is located there.
To determine the place of effective management, States rely on a body of concordant evidence.
- In principle, therefore, a company is domiciled – and therefore taxed – at the place where it has its registered office.
- Freedom of management means that a company’s registered office can be freely determined.
- However, tax law also recognizes the concept of the effective place of management (EMO), to designate the place from which a company is actually managed and controlled.
- Central tax function
The SDE is first and foremost a criterion of tax affiliation. It is used to determine in which state a company is resident for tax purposes, and therefore where it is taxable – by default – on all its worldwide profits (worldwide taxation).
The notion of a farm in France covers two alternative criteria:
∙ the existence of a permanent establishment in France, or
∙ operations forming a complete business cycle, or
∙ the effective management headquarters located in France.
- The EDS in international tax treaties
The operational importance of the concept is fully appreciated here.
In the event of dual residence of a company (resident in two States simultaneously), Article 4 §3 of the OECD Model provides for the use of the SDE as a tie-breaking criterion:
“Where […] a person other than an individual is a resident of both Contracting States, he shall be deemed to be a resident only of the State in which his place of effective management is situated.”
The OECD Commentary on this article defines EDS as :
“the place where key management and business decisions that are necessary for the conduct of the entity’s business as a whole are made.”
The criteria used by the OECD to locate the EDS can therefore be summarized as follows:
- Location of Board meetings
- Place where managers actually carry on their business
- Location from which instructions are given
- Residence of key executives
- Accounting and archive location.
- French case law
French courts have gradually refined the concept, with a fairly dense body of case law on the subject, in particular with the Société Cie Internationale des Wagons-lits ruling (Conseil d’Etat, 10ème – 9ème SSR, 07/03/2016, 371435).
In concrete terms, the judge examines :
∙ Who makes the decisions (shareholder, de facto manager, corporate officer)?
∙ Where are corporate meetings held?
∙ Where does the managing director live and work?
∙ Are BOD minutes fictitious or sincere?
Very recently, the Versailles Court of Appeal handed down a ruling[3] in which it held that a holding company established in Luxembourg, holding shares in French companies and whose director was domiciled in France, should be considered as having its effective management headquarters in France.
- The tax risks associated with a poorly located EDS
a) Reclassification as a French tax resident
If the tax authorities demonstrate (the burden of proof remains with them) that the EDC of a foreign company is in fact in France, they can :
∙ Subject the company to French corporation tax on its worldwide profits,
∙ Apply penalties (80% in the case of fraudulent maneuvers),
∙ Engage the criminal liability of directors (tax fraud).
In this case, the administration also benefits from a ten-year recovery period.
b) Double taxation
If two states simultaneously claim a company’s tax residence, without a treaty resolution mechanism, the company may be taxed twice on the same profits.
c) Abuse of rights (LPF art. L.64)
The tax authorities can invoke abuse of law if the location of the EDC abroad is artificial and is intended solely to evade French tax.
- Impact of the BEPS project, European directives and the multilateral instrument (MLI)
Action 6 BEPS – Preventing treaty abuse
The OECD has introduced the Principal Purpose Test (PPT): if one of the main purposes of an arrangement is to obtain a treaty advantage, this may be refused, even if the EDS is formally located abroad.
Modification of article 4 §3 of the OECD Model (2017 version)
The 2017 version of the Model has abandoned the automaticity of the SDE criterion for dual corporate residences. From now on, the competent authorities of the two States must reach an agreement (mutual agreement), taking into account several factors:
∙ the SDE,
∙ place of incorporation,
∙ and any other relevant elements.
This is a significant tightening of the rules, making it more difficult for international groups to manage their affairs from a tax point of view.
The Multilateral Instrument (MLI – 2016)
Signed by over 100 jurisdictions, it automatically amends existing bilateral agreements to incorporate the new anti-abuse rules.
European directives and regulations
The Parent-Subsidiary Directive (2011/96/EU) and the ATAD Directive (2016/1164 and 2017/952) are based on tax residence, of which the EDS is a central criterion.
Under the terms of EC Regulation no. 2157/2001 on the European Company (SE), an SE must have its registered office and central administration in the same Member State, illustrating the tension between formal registered office and SDE.
- Concrete examples
Luxembourg holding company managed from Paris:
→ Requalification as French resident of the aforementioned Holding company if the actual decisions are taken in Paris, even if the Board of Directors meets formally in Luxembourg.
Company registered in Dubai, manager living in France:
→ The tax authorities, who have an interest in this, check emails, diaries, travel tickets, to demonstrate that the actual management is French.
Irish company of a French group:
→ No tax challenge if it has substance substance (premises, employees, Irish resident directors with autonomous decision-making powers).
Do you have any doubts after reading this article? Contact us to verify and secure your situation -> in the “contact” section of the site.
[1] Article 4 of the OECD Model Tax Convention on Income and Capital
[2] BOI-RPPM-RCM-30-30-30 §60
[3] CAA Versailles, January 8, 2026, no. 23VE00165
