Error ruling out occult activity: new clues?

A Spanish company was subject to a tax audit by the French taxadministration , following which the agency determined that the company had an undeclared permanent establishment in France.

She turned the company around and also ruled that, since the business had not been registered, its operations were clandestine, resulting in an extension of the statute of limitations to 10 years and the application of an 80% surcharge.

The company challenged the tax assessment all the way to the Court of Cassation ( Conseil d'Etat). It relied on the Frutas case law from the Court of Appeal of Paris ( Conseil d'Etat ) (CE, Tax Plenary Session, Dec. 7, 2015, No. 368227, Lebon), according to which, when a taxpayer has made an error, the activity cannot be considered hidden. In the specific case of a taxpayer who has complied with tax obligations in another country, “the justification for the error committed must be assessed by taking into account both the tax rate in that other country and the procedures for the exchange of information between the tax authorities of the two countries.”

The Court of Justice of the European Union ( Conseil d'Etat ) will then rule, in the case of the company, that the level of taxation is not assessed solely by comparing“the tax rates in effect in the two states” and that the company’s actual tax rate may also be taken into account.

The High Court also considers that it would be possible to take into account the social security contributions due on wages when assessing the company's financial standing.

These new guidelines may pose difficulties for some taxpayers, but they may also enable others to demonstrate that an error has occurred.

CE, Chapters 9 and 10, Sept. 30, 2026, No. 509255, Lebon T.

This legal watch produced by Mispelon Avocat, a law firm specializing in French tax audit and French tax litigation. You can follow this legal watch subscribing to the newsletter via this link.