A French company rarely decides to become taxable in the United States. It drifts there, one warehouse, one hire, one signature at a time.
No French company ever writes to the IRS to announce that it has become taxable in the United States. The permanent establishment is not declared; it is discovered, usually by the administration, usually years later, and usually because an arrangement that was reasonable at the start quietly crossed a line as the American business grew. A sales representative began negotiating terms. A consignment stock became a fulfillment operation. An employee moved to the United States for family reasons and kept working from home.
The concept that governs all of this is the permanent establishment (établissement stable) of the France-United States tax treaty of 31 August 1994, as amended in 2004 and 2009. Its logic is binary and its consequences are not: below the threshold, a French company can sell into the American market and owe no US tax on its business profits; above it, the United States taxes the profits attributable to the establishment, adds its branch profits tax, and expects returns that were never filed.
This article maps the risk. Part I explains why the permanent establishment is the pivot of the entire Franco-American corporate tax relationship. Part II details the classic triggers written into the treaty. Part III examines the modern gray zones: remote employees, warehouses, and the subsidiary next door. Part IV covers the consequences and the management discipline we recommend.
I. Why the permanent establishment is the pivot
A. The treaty rule: no establishment, no US tax on business profits
Article 7 of the treaty states the rule with rare clarity: the business profits of a French enterprise are taxable only in France, unless the enterprise carries on business in the United States through a permanent establishment situated there, and then only to the extent the profits are attributable to that establishment (Convention of 31 August 1994, art. 7, para. 1). The permanent establishment is thus the exclusive gateway through which the United States may tax a French company's operating profits. Everything short of it, direct sales, marketing visits, trade shows, remote support, leaves the profits in France alone.
B. The French mirror completes the mechanism
On the French side, territoriality does the symmetrical work: French corporate income tax is assessed on the profits of enterprises operated in France and on those allocated to France by treaty (CGI, art. 209, I). Profits attributable to a genuine American permanent establishment therefore exit the French base. The couple is elegant in theory and unforgiving in practice: the taxpayer who miscalls the threshold does not merely pay tax in the wrong country, it pays late, with penalties, in a country where it has filed nothing, while having to claim relief in the other. The entire compliance economics of a US market entry rest on calling this line correctly, in advance.
II. The classic triggers: fixed place, agent, site
A. The fixed place of business
The treaty's base definition is a fixed place of business through which the enterprise carries on all or part of its activity, with the classic illustrative list: a place of management, a branch, an office, a factory, a workshop, a mine (art. 5, para. 1 and 2). Two features deserve emphasis. Fixity is geographic and temporal, not legal: no lease is required, and a desk made permanently available in a customer's or partner's premises can suffice. And the place must serve the enterprise's business: the test is functional, which is precisely what makes the safe harbors of paragraph 4 valuable.
B. The safe harbors: what the 1994 treaty still protects
Paragraph 4 excludes from permanent establishment status the facilities used solely for storage, display or delivery of the enterprise's goods, stocks held solely for those purposes or for processing by another enterprise, and fixed places used solely to purchase goods, gather information, or perform any other activity of a preparatory or auxiliary character, including combinations of these that remain preparatory or auxiliary overall (art. 5, para. 4). A point of comparative law matters here: the France-US treaty predates the recent international tightening of these exceptions, and its text still shelters delivery as such. The prospection phase we described in our founder's roadmap lives in this paragraph, and it is genuinely protective, but only for activities that remain within its letter: a warehouse that also handles returns, customization or customer service has left the harbor.
C. The dependent agent, and the twelve-month site
The second trigger is human: a person, other than an independent agent acting in the ordinary course of its business, who acts on behalf of the enterprise and habitually exercises in the United States an authority to conclude contracts in the enterprise's name, constitutes a permanent establishment for all the activities that person performs for the enterprise (art. 5, para. 5 and 6). The test is substance, not signature: an American representative who negotiates all essential terms, with France rubber-stamping, is the classic reassessment scenario. Third, construction and assembly sites, drilling installations and vessels constitute a permanent establishment only where their duration exceeds twelve months (art. 5, para. 3), a threshold that industrial exporters must track contract by contract, extensions included.
III. The modern gray zones
A. The remote employee
The configuration multiplied by the remote-work decade: an employee of the French company, often a French national following a spouse, works from a home office in the United States. The home is not the company's premises, but the analysis does not stop there: where the employer requires or expects the work to be performed there, where the role is continuous and core to the business, and above all where the employee negotiates or concludes contracts, the combination of a de facto fixed place and a dependent agent puts the company squarely at risk. Our reading: a US-based employee limited to genuinely auxiliary functions is defensible; a US-based salesperson or executive is a permanent establishment waiting for an audit. The clean alternatives are known: localize the role in a US subsidiary, or restructure the functions before the move.
B. The warehouse and the fulfillment economy
E-commerce has made the paragraph 4 storage exception the most litigated boundary in practice. Goods held in a third-party fulfillment network for storage and delivery sit, in principle, within the treaty's safe harbor. But the analysis degrades with every added function: returns processing, labeling, kitting, local customer service, and the question of whether the fulfillment operator has drifted from independent service provider to dependent agent. Sales tax obligations, which follow state law and ignore the treaty entirely, arise far earlier and must not be confused with the federal profits question. Our discipline: map the physical footprint annually, function by function, and treat any change in the logistics contract as a tax event to be reviewed.
C. The subsidiary next door
The treaty says expressly that a subsidiary is not, by itself, a permanent establishment of its parent (art. 5, para. 7). The corporate veil holds, provided the roles are real: the subsidiary must act in its own name, on its own contracts, remunerated at arm's length for its functions. The veil fails where the American subsidiary habitually concludes contracts in the name of the French parent, or where the parent's personnel operate from the subsidiary's premises as if at home. The subsidiary is the pare-feu we recommended in our roadmap, but a pare-feu only works if the fire stays on its side: intercompany agreements, transfer pricing documentation and a clean separation of signature authority are what keep paragraph 7 effective.
IV. Consequences and management
A. What a permanent establishment costs
Once the threshold is crossed, the United States taxes the profits attributable to the establishment as if it were a distinct and independent enterprise (art. 7, para. 2), at the federal corporate rate of 21% (IRC, section 11), plus state taxes where operations create nexus, the states being bound by their own rules rather than by the treaty. On top comes the branch profits tax on the establishment's deemed repatriations, imposed domestically at 30% but capped by the treaty at the 5% rate of its dividend article for qualifying French companies (Convention, art. 10, para. 8 and 9). The arithmetic is close to that of a subsidiary distributing dividends; the difference, as we have written, is the unlimited liability exposure and the retroactivity: a discovered establishment owes back taxes, interest and penalties for every open year, computed by an administration that will not be generous in attributing profits.
B. The management discipline
Our method holds in four practices. First, the annual footprint review: people, premises, stock and signature authority in the United States, mapped against Article 5 before each operational change rather than after. Second, contractual hygiene: representation agreements that reserve conclusion of contracts to France must describe reality, not decorate it. Third, where genuine uncertainty exists, the protective filing: a US return filed on a protective basis preserves the right to deduct expenses in computing attributable profits should the administration later assert an establishment, an insurance whose cost is a form and whose absence can mean taxation on gross receipts. Fourth, the exit: when the analysis concludes that the threshold is crossed or will be, the answer is rarely the branch we cautioned against, but the deliberate incorporation of the American operation, with the treaty's subsidiary clause doing precisely the work it was written for.
C. Our position
The permanent establishment is not a risk to be minimized at all costs; it is a line to be crossed deliberately or not at all. Companies that test the American market within the treaty's safe harbors owe nothing and should document why. Companies whose American substance has outgrown the harbors should incorporate before the administration characterizes them. The only losing strategy is the middle one: substantial American activity conducted through a nominally French structure, undocumented, unfiled, and waiting to be found. The treaty gives French enterprises an unusually clear map; the failures we see are almost never failures of law, but failures to reread the map after the business moved.
Conclusion
The France-US treaty makes the permanent establishment the sole gateway to American taxation of a French company's business profits, and French territoriality makes the same line the exit from the French base. The classic triggers are known: the fixed place, the dependent agent who habitually concludes contracts, the site beyond twelve months. The modern ones are quieter: the remote employee, the fulfillment warehouse that does more than store, the subsidiary whose separation from its parent is more legal than real.
The practical instruction: treat the Article 5 analysis as a living document, reviewed with every operational change, and treat the crossing of the line, when it comes, as a decision to structure rather than an accident to conceal. A permanent establishment chosen is a subsidiary with a business plan; a permanent establishment discovered is a reassessment with interest.
Frequently asked questions
Our French company sells online to American customers with no office or staff there. Are we taxable in the US?
On business profits, in principle no: without a fixed place of business or a dependent agent in the United States, there is no permanent establishment, and the treaty reserves the taxation of your profits to France. Watch two separate subjects, however: state sales tax obligations, which follow each state's own rules and can arise from sales volume alone, and any physical footprint you add later, starting with stock in an American warehouse.
One of our employees is moving to the United States and will keep working remotely for the French company. Is that a permanent establishment?
It depends on the functions. An employee limited to genuinely auxiliary tasks is defensible; an employee who sells, negotiates or manages the American business from a home office combines a de facto fixed place with a dependent agent, which is the classic establishment scenario. Restructure the role before the move: either localize it in a US entity or strip it of the functions that create the exposure.
We store goods in a US fulfillment center. Does that create a permanent establishment?
Storage and delivery of your goods sit within the treaty's express exceptions, so a pure fulfillment arrangement is protected. The protection erodes as functions accumulate: returns, customization, local customer service, or an operator so integrated into your business that it resembles a dependent agent. Map the functions annually and review the analysis whenever the logistics contract changes. Sales tax is a separate question and arises much earlier.
What happens if the IRS finds a permanent establishment we never declared?
The United States taxes the profits attributable to the establishment for the open years at the 21% federal rate plus state taxes, adds the branch profits tax capped at 5% by the treaty, and applies interest and penalties, with the aggravating factor that expense deductions can be jeopardized by the absence of filed returns. That last risk is why, in genuinely uncertain configurations, we file protective returns: an inexpensive insurance that preserves deductions if the analysis is later lost.