A foreign company is not a shield if it has no substance

Article 155 A of the French tax code in practice

Using a foreign company to invoice services performed for a French entity is often perceived as a clean and efficient solution. On paper, the structure may appear coherent. In practice, however, form alone offers little protection when substance is missing.

Recent case law from the Paris Administrative Court of Appeal once again illustrates how strictly Article 155 A of the French tax code is applied when management or operational services are invoiced through a foreign entity.

The legal framework: what Article 155 A is designed to prevent

Article 155 A of the French tax code targets situations in which income is artificially diverted abroad through a foreign entity, while the underlying services are in fact performed in France by an individual who controls that entity.

The rationale is simple: taxation follows the reality of the activity, not the legal wrapper used to invoice it.

When the conditions of Article 155 A are met, the income invoiced by the foreign company may be recharacterised and taxed directly in France, in the hands of the individual who actually performed the services.

A reminder from recent case law

In a decision rendered on 25 September 2025, the Paris Administrative Court of Appeal confirmed a strict application of Article 155 A, rejecting the taxpayer’s attempt to rely on the mere existence of a foreign company to avoid French taxation.

The Court reaffirmed a constant principle: once the tax authorities establish that

• the services were effectively performed in France,
• the invoicing was carried out through a foreign entity, and
• the individual performing the services controlled that entity,

the burden of proof shifts to the taxpayer.

At that stage, it is no longer sufficient to point to the formal existence of the foreign company.

The burden of proof: where structures usually collapse

When Article 155 A is triggered, the taxpayer must demonstrate that the foreign entity genuinely carried out the services invoiced to the French company, within that specific contractual relationship.

This is precisely where many structures fail.

Elements that are often put forward — but consistently dismissed by the courts — include:

• the existence of other clients of the foreign company,
• the presence of employees working on unrelated activities,
• or the personal tax residence of the individual abroad.

None of these elements, taken in isolation, proves that the foreign entity brought real and autonomous value to the services invoiced to the French company.

What actually matters under Article 155 A

What the tax authorities — and the courts — look for is concrete substance.

In particular:

• who actually performed the services,
• where the work was carried out,
• who made the decisions,
• what processes and deliverables can be identified,
• and whether the foreign entity had the operational capacity to act independently.

If the foreign company is unable to demonstrate its own contribution to the services invoiced, it is treated as a mere letterbox entity. The income is then taxable in France, often with penalties.

Strategic implications for cross-border executives

Structures that appear “clean” from a formal perspective are often the most fragile when tested against Article 155 A.

Cross-border executives should assume that their arrangements will be examined file by file, based on facts, not on abstract group diagrams or generic service agreements.

The real risk is not complexity. It is inconsistency between contracts, operational reality and value creation.

Conclusion: a practical checklist before Article 155 A is applied

Before assuming that a foreign company provides effective protection, it is worth reviewing the structure against a few fundamental questions.

A practical checklist for cross-border structures

You should be able to answer “yes” to each of the following:

• Can the foreign company demonstrate its own operational role in the services invoiced to the French entity?
• Are decision-making, processes and deliverables clearly identifiable at the level of that company?
• Is the contractual documentation aligned with what actually happens in practice?
• Would the structure withstand a detailed review focused on one specific service relationship, rather than the group as a whole?
• Could you explain, with evidence, what value the foreign entity brings beyond invoicing?

If one of these questions raises doubt, the issue is rarely technical. It is structural.

How we can help

At Altara Tax, we assist international entrepreneurs and executives in reviewing and securing cross-border service structures exposed to Article 155 A risks.

Our work focuses on:

• analysing substance where value is actually created,
• aligning contracts with operational reality,
• and designing structures that can withstand a fact-based tax audit.

If your current setup would not pass this test, it is usually better to address it proactively rather than under audit pressure.