What criteria should be used to determine whether a payment qualifies as a royalty under a tax treaty?

A Korean company had entered into a contract with a French company titled "license agreement." When the French company made the payment specified in the contract, it withheld 10% as a withholding tax.

The Korean company subsequently filed a claim seeking a refund of this withholding tax. It argued that Article 12 of the Franco-Korean tax treaty applied only to royalties and did not apply to the provision of services. However, the company argued that in this specific case, the contract compensated for the provision of services and that, under the treaty, France had no right to tax it.

The Administrative Court, to which the dispute has been referred, will examine the terms of the contract titled "license agreement." Based on the various terms, it will conclude that the Korean company did not transfer all of its rights to the French company when granting the licenses to exploit the patents.

It also considers that the following is irrelevant:

• the sharing of development costs by the contracting parties with a view to bringing the product to market

• the fact that the research on the licensed products was allegedly conducted solely by the Korean company.

The Court therefore finds that the purpose of the contract is to license patents and that no provision of the tax treaty precludes the 10% withholding tax.

It therefore confirms the rejection of the company's claim.

CAA Paris, Feb. 12, 2026, No. 24PA01330

This monitoring service is provided by Mispelon Avocat, a law firm specializing in tax audits and tax litigation. You can stay updated by subscribing to the newsletter via this link.