tax notes international - Tuck School of Business - Dartmouth College

SPECIAL REPORTS
The operations carried out by the Zimmer group are
described in figures 3 and 4.
The main issue was whether Zimmer SAS constituted
an agency PE of Zimmer Ltd. and as a consequence
a part of the latter’s company profits were attributable
to that PE and subject to tax in France. The
court concluded that Zimmer SAS constituted a PE of
Zimmer Ltd., and the profits realized in France by
Zimmer Ltd. were taxable in France. 39
There was a lengthy discussion on the characterization
of an agency PE because the parties concluded a
commissionaire arrangement, a particular feature of
civil-law jurisdictions. A commissionaire can be defined
as an intermediary that acts on behalf of its principal,
in its agency capacity, but in its own name. The commissionaire
performs an indirect representation; it assumes
personally the rights and obligations arising
from the contracts concluded with a third party and
the latter does not have a legal relationship with the
principal. This particular feature of the commissionaire
arrangement gives rise to two separately legal relationships:
• a principal and commissionaire relationship; and
• a commissionaire and third-party relationship. 40
Thus, the two main differences of the commissionaire
under French law and the agent described in the
OECD model convention and its commentary are:
• the commissionaire is legally responsible before
the client, while the typical agent described in the
OECD model convention and its commentary is a
person acting on behalf of the enterprise and not
on its own capacity; and
39 Id.
U.K.
France
40 Persico, supra note 18, at 76.
After 1995
Commissionaire
arrangement
Figure 4. Zimmer
Zimmer
Ltd.
Zimmer
SAS
Zimmer Ltd.
Main Functions/Risks
Manufacturing function
Marketing function
Market risk
Inventory risk
Credit risk
Zimmer SAS
Main Functions/Risks
Sales function
• the commissionaire concludes contracts in its own
name, whereas the agent has authority to conclude
contracts in the name of the enterprise. This
notion is strange to common law, in which a contract
concluded by an agent always binds the principal,
irrespective of whether the principal was
disclosed. 41
In the taxpayer’s view, these features of the commissionaire
arrangement would be sufficient to avoid the
characterization of a PE in France. Indeed, unlike a
conventional distribution carried out through a typical
agent, a commissionaire should not be considered to
constitute an agency PE in the sense of article 5(5) of
the OECD model convention because it does not have
power to bind the principal and because it concludes
sale contracts in its own name, rather than in the name
of the principal. In practice customers may not be
aware that they are dealing with an agent because they
only have a contractual relationship with the commissionaire.
Of course, one should not rely on an extreme
formalistic approach to limit the application of article
5(5) of the OECD model convention to agents that
enter into contracts literally in the name of the enterprise,
as such provisions equally apply to agents that
conclude binding contracts that are not actually in the
name of the enterprise. 42 However, under a commissionaire
arrangement the issue is not only the name of
whom the contract is entered into with, but also, and
more important, the lack of binding effects regarding
the principal.
I believe that as a result, in a typical commissionaire
arrangement the requirements of article 5(5) of the
41
See Avery Jones et al., supra note 15, at 236; Persico, supra
note 18, at 68.
42
Vogel, supra note 3, at 329. The same view is expressed in
para. 32.1 of the OECD commentary on article 5.
428 • FEBRUARY 2, 2009 TAX NOTES INTERNATIONAL
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