Luxembourg holding structures and effective place of management: French courts confirm substance over form
The Versailles Administrative Court of Appeal, in a decision dated 8 January 2026 (CAA Versailles, 3rd Chamber, No. 23VE00165), confirmed the French tax authorities’ position that a Luxembourg company could be fully subject to French corporate income tax and VAT when its effective place of management is located in France, notwithstanding the existence of a registered office in Luxembourg.
The case concerned a Luxembourg public limited company acting as a holding and licensing entity within a French group. Although formally domiciled in Luxembourg and relying on local service providers, the company was found to be effectively managed from France by its main shareholder and director. The tax authorities demonstrated that all strategic decisions were taken from France, that Luxembourg service providers had no real decision-making autonomy, that accounting and legal instructions originated from France, and that key documents were signed in Paris. The Court held that these elements were sufficient to characterize a French “place of effective management”, constituting both a French permanent establishment under the France–Luxembourg tax treaty and a French place of taxation under domestic law.
As a result, the Court confirmed that the company’s profits were taxable in France under Article 209 of the French Tax Code and that the company was also liable for French VAT, since it carried out taxable services whose place of supply was deemed to be in France and had its economic activity effectively based there. The company could not rely on administrative doctrine to avoid VAT liability, nor challenge the regularity of the tax procedure on the basis of alleged notification defects.
The Court further upheld the application of the 80% penalty for concealed activity. It emphasised that the absence of any tax filings in France, combined with the artificial localisation of income in Luxembourg and the resulting tax advantage, excluded any good-faith error. The fact that the company claimed to have complied with its obligations in Luxembourg was not sufficient, given the lower effective taxation and the VAT neutrality mechanisms used within the group.
This decision provides a clear reminder that the substance of management and decision-making prevails over formal corporate arrangements. For international groups, it reinforces the importance of aligning governance, operational reality and tax compliance, as the use of foreign holding or licensing structures without genuine local substance continues to be closely scrutinised by the French tax authorities and courts. We cannot recommend enough to have real substance in Luxembourg in order to be able to demonstrate that the decision taking is done in Luxembourg (offices, employee on the pay roll, majority of Luxembourg resident managers, holding board meetings physically in Luxembourg, etc…)
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Photo – Rosc Art
