tax notes international - Tuck School of Business - Dartmouth College

Switzerland
France
Execution of
contracts
The French tax authorities’ arguments were overruled
by the Court of Appeals of Paris because the
activities carried out by Interhome Gestion were legally
different from those of Interhome AG and the former
did not have legal authority to bind the latter. 27
Later on, the case was brought before the Supreme
Administrative Court, which held that Interhome Gestion
would only constitute a PE of its parent company
if the requirements of article 5 of the France-
Switzerland treaty, equivalent to article 5(5) of the
OECD model, were met. In other words, such characterization
would only occur if Interhome Gestion
could not be considered an independent agent and if it
habitually exercised in France an authority, legal or
factual, to conclude contracts in the name of Interhome
AG that relate to ordinary business activities of
that company. 28 Therefore, the Supreme Administrative
Court maintained the core part of the decision of the
Court of Appeals of Paris, rejecting the characterization
of Interhome Gestion as a PE of its parent company.
Despite this outcome (that is, no characterization of
the subsidiary as being a PE of its parent company),
the relevance of this case to the present analysis is that
the Supreme Administrative Court of France clearly
described the requirements by which a subsidiary
might constitute a PE of its parent company, emphasizing
the possibility of a subsidiary binding de facto
its parent company and not only legally. According to
27
Court of Appeals of Paris, decision 96-859 2e (released
June 13, 2000).
28
Klaus Vogel in cooperation with the IBFD’s Tax Treaty
Unit, ‘‘1. Subsidiaries as Permanent Establishments?’’ Bulletin —
Tax Treaty Monitor, Tax Treaty News (Oct. 2003), p. 474.
Figure 1. Interhome
Interhome AG
Interhome
Gestion
SPECIAL REPORTS
Other European States
Mandate contracts with
house owners
Payment of commission on
the rents
the Conseil d’Etat, the exercise of the authority to bind
the Swiss parent should be determined not only by reference
to a legal mandate, but also by reference to the
actual circumstances.
This factual approach adopted by the Conseil d’Etat
would prove to be decisive in a later case — Zimmer —
analyzed below, that was heavily criticized by some
scholars.
B. Philip Morris
The importance of the Philip Morris case29 to the
present work resides not only in that it involves a dependent
agent that is a subsidiary of its principal, but
also, and most important, because of the particular
features envisaged by the Italian Supreme Court for the
characterization of what it called a ‘‘multiple PE’’ — a
PE within a group of companies.
Philip Morris involves an audit carried out by the
Italian tax authorities regarding the character of the
activities performed by Intertaba SpA, the Italian company
of the Philip Morris group, which was structured
at the time of the facts as shown in Figure 2.
The decision of the Supreme Court of Italy stated
that because of the activities carried out by Intertaba
SpA in supervising the performance of the licensing
and distribution contracts concluded among the other
companies of the Philip Morris group and its participation
in negotiating such contracts, the company could
be deemed to be a ‘‘place of management’’ at the disposal
of the entire group. Intertaba SpA was then considered
to constitute a ‘‘multiple subsidiary’’ PE in
29 Italian Supreme Court, Dec. 20, 2001, decisions 3367 and
3368; Italian Supreme Court, Dec. 20, 2001, decision 7682; and
Italian Supreme Court, Dec. 20, 2001, decision 10925.
TAX NOTES INTERNATIONAL FEBRUARY 2, 2009 • 425
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