On 24 March 2026, the Nantes Administrative Court of Appeal upheld the tax reassessment of a Luxembourg-based company, Coupole Finance, which had been reclassified as a business operating in France due to a lack of economic substance in Luxembourg and the fact that its management was effectively based in France.

The case concerns a company established in Luxembourg in 2000, officially engaged in the sale of spherical houses. Behind this entity, the French tax authorities identified an operational structure centred in France, within the company Domespace International, based in Quimper. Following an audit of the accounts, the tax authorities imposed additional corporation tax assessments for the period 2003-2010, as well as VAT back payments, accompanied by heavy penalties for undeclared activity. The total amount is not known.

At the heart of the dispute lies the concept of ‘effective management’, which is decisive in international tax matters. The court notes that the place of management corresponds to the location where strategic decisions are taken. In this case, several factors led to the conclusion that there was no genuine presence in Luxembourg: the absence of dedicated premises, the use of a mere registered address, the absence of staff and operational resources, and, above all, the central role played by the director, a French resident, in the management and commercial development of the business.

Permanent establishment… in France

The judges note that all operations – signing contracts, managing sales networks, and valuing intangible assets – were directed from France. The fact that board meetings were held in Luxembourg or that certain administrative processes passed through the country is deemed insufficient to establish a genuine presence. Furthermore, no clients were based in Luxembourg.

In these circumstances, the company is deemed to have a permanent establishment in France, within the meaning of both domestic law and the Franco-Luxembourg tax treaty. The court thus upholds the taxation of profits in France and the company’s liability for French VAT, as the services are deemed to have been performed within French territory.

Beyond the location of the business, the ruling also illustrates the scope of the classification of a hidden business. As the company had neither declared its business in France nor filed the relevant tax returns, the tax authorities were able to apply the extended recovery period of ten years. The argument that tax obligations had been fulfilled in Luxembourg was rejected, with the Court noting in particular the lack of evidence of a comparable level of taxation and the limitations on the exchange of information between states during the period in question.

Back payment plus an 80% surcharge

In substance, the judges also upheld the adjustments made by the tax authorities. In particular, they confirmed the reinstatement of unrecorded royalties under a concession agreement with the French subsidiary, ruling that these constituted revenue receivable upon the completion of sales, regardless of whether payment had actually been made. They also approved the classification of licence rights generating regular and sustainable income as intangible fixed assets.

Finally, the 80% surcharge for undeclared business activity has been upheld, as the Court considered that the company could not have been unaware of its tax obligations in France, given the actual location of its business.

This decision is consistent with established case law, but takes on particular significance in the current context of the fight against artificial arrangements. It serves as a stark reminder that simply having a registered office in Luxembourg is not sufficient to establish a tax presence, and that economic substance – staff, resources and decision-making – remains the decisive criterion.

She became involved quite late in the company’s history, which had been placed in administration in 2017 with liabilities of €4 million. The directors were prohibited from managing any business activities. In the same year, their son-in-law had set up a new company for the same business, which was wound up in 2023 with a date of suspension of payments set for January 2019.