International Mobility, Permanent Establishment and Transfer Pricing: Key Questions Every Company Should Be Asking

When HR, tax and operational teams work in silos, certain mobility decisions — initially treated as simple HR choices — can, without the company realising it:

• alter value creation within the group and disrupt the transfer pricing policy;
• lead to the creation of a permanent establishment in the host country.

Addressing these matters solely from an operational perspective — by focusing on career management or personal taxation — exposes the company to financial and reputational risks, and in some cases even criminal consequences for its governance.

The issue is far from theoretical: it is fundamentally organisational and requires enhanced coordination between the company’s various functions.

Below is a summary of the discussions held with Marine CAHN from SWIM.‍

Which companies are really concerned – and in what concrete situations does the risk arise?

All of them.

The most common cases are extremely ordinary:

• a start-up seeking to enter a new market and hiring a contractor or sending a VIE on site;
• an SME agreeing to permanent remote work abroad for a senior manager;
• a large group that already has international teams, but where functions are so segmented that HR, tax and operational departments no longer communicate on mobility cases.

Here are a few typical scenarios:

• “I can’t find the skills in France, so I’m recruiting elsewhere.”
• “There’s no local entity? No problem — I’ll hire through the French company, and the employee will work abroad.”
• “Expatriation is almost a mandatory step in career development. We simply recharge the costs to the host entity.”

In these situations — as in most international mobility cases — the decision is handled as an HR matter, almost always without considering the tax implications for the company.

Since Covid, the phenomenon has accelerated: international teleworking, recruitment without geographical constraints, fragmentation of strategic functions, “work-from-anywhere” programmes…

These day-to-day situations are generally treated as HR topics but are in fact structurally significant from a tax perspective.

Before discussing risk: what exactly are transfer prices?

Transfer pricing refers to the prices at which transactions between companies in the same group are carried out.

Except for dividend distributions, all economic flows between two group entities established in different countries fall within the scope of transfer pricing regulations.

This includes:

• the sale, rental or provision of goods;
• the provision of services and secondment of personnel;
• the transfer or licensing of intangible assets (brand, technology, know‑how);
• financial flows (loans, current account advances, cash pooling, treasury agreements).

And the absence of remuneration does not mean there is no issue. Whenever an economic flow exists, several questions must be asked:

• Should there be remuneration?
• Can the absence of remuneration be justified?
• If remuneration exists, is it at arm’s length — comparable to what an independent party would accept in similar circumstances?

The guiding principle is: if the two companies were independent, would they have agreed to the same terms?

In other words:

• does the transaction reflect, in substance, what would have been put in place between independent entities?
• does the consideration (typically the price) correspond to what independent companies would have agreed?
• if not, what factors justify the difference (nature of the transaction, functions performed, risks borne, assets used, volume, economic strategy, etc.)?

The underlying question is that of “abnormal management practices” between related companies in an international context. It is not theoretical. It lies at the heart of tax audits and, because it directly affects a company’s financial results — and therefore profit-sharing or incentive schemes — it is increasingly central to discussions with employee representative bodies

Why is international mobility a transfer pricing issue?

In practice, mobility is often examined through the lens of:

• the employment contract,
• social security coverage,
• personal taxation.

When corporate tax matters arise, the reflex is often:
“They are working abroad — what do we do with the costs? Should we recharge them? For how much? To whom? How?”

However, mobility can change how value is created within the group, thereby shifting the economic balance between entities and influencing how transfer prices must be set.
The tax question must therefore be addressed in a much more operational manner:

• Who benefits from the activity?
• Where are decisions made?
• Who assumes the risks?

A concrete example

A French entity may be classified as an “entrepreneur” for transfer pricing purposes because it defines the company’s strategy, owns key intangible assets and makes decisions relating to the management of significant business risks.

If the person making those decisions permanently relocates abroad and continues to manage operations from there, the balance may shift — potentially transforming the French entity into a mere subcontractor.

In a large group, this scenario may seem exaggerated, as decisions seldom rest on a single individual.
But in a start‑up, micro‑enterprise or SME, where decision‑making is concentrated in one person, that person’s mobility can materially affect the overall transfer pricing position.

International mobility is therefore not just a cost issue.
It is an issue of the location of functions, risks and assets, and by extension, of the location of profits.

Permanent Establishment and Transfer Pricing: How Do These Concepts Differ?

A permanent establishment (PE) relate to the existence of taxable presence of a company in a country other than the one in which it is incorporated.

Unlike transfer pricing — which applies to groups of companies — the question of permanent establishment concerns both group entities and standalone companies, whenever individuals acting on their behalf (employees, umbrella‑company workers, freelancers, agents or non-salaried directors) perform activities on a recurring basis outside the country of the company’s registered office.

Asking whether a PE exists means assessing whether the presence of these individuals abroad creates a taxable presence of the company in the country where they carry out their activities.

Transfer pricing, by contrast, is a matter of value and profit allocation: If there are intra‑group flows or if a taxable base exists somewhere, how should profits be allocated? What recharges? What margin? What remuneration for functions and risks?

A company may therefore:

• face transfer pricing issues without having a permanent establishment (it is sufficient that it belongs to an international group and transacts economically with other group entities);
• conduct business abroad without creating a subsidiary and nonetheless, because of activities carried out abroad, be required to declare a taxable presence locally (a PE) and consequently face transfer pricing issues afterwards, since it will then be necessary to determine the share of profit to allocate to that PE.

These are two different but complementary levels of analysis.

Can a company have a permanent establishment without a subsidiary or branch?

Yes. This is precisely why the term “permanent establishment risk” is often used: because the company has not declared anything locally, and the issue only becomes apparent during a tax audit.

A permanent establishment is an autonomous tax concept.
It can exist:

• without local registration,
• without a declared branch,
• without a subsidiary.

The absence of a recognised legal presence does not mean the absence of a taxable presence.

Conversely, the existence of a subsidiary does not automatically exclude permanent establishment risk.

A subsidiary may give rise to the recognition of a permanent establishment of a related company where the subsidiary’s employees are involved in the marketing of the foreign company’s products or services, and where the subsidiary does not act as a buy‑sell distributor but is merely remunerated as a service provider (i.e. reimbursed for its costs and receiving a margin not correlated to the turnover generated).

In such circumstances, the tax authority in the subsidiary’s country may consider that the subsidiary is acting as a dependent agent of the foreign company, triggering the existence of a permanent establishment.
In that case, the permanent establishment must be allocated additional profit (based on the turnover generated) in addition to the service fee received by the subsidiary.

Does having an employee abroad automatically create a permanent establishment?

No. Physical presence is not enough. It is assessed on a case‑by‑case basis and various elements are taken into account.

In “permanent establishment”, there is “permanent”. So we are talking about a situation that is lasting over time. This is the starting point of the analysis.

While HR teams generally think in terms of the individual when they handle a mobility situation, corporate taxation requires an analysis at the entity level — or even at the level of the group of entities, depending on tax treaties.

To determine whether a situation is likely to qualify as a permanent establishment, one does not look only at the duration of the individual’s presence abroad; one looks at the continuous presence of the company and, in certain circumstances, the presence of all the companies of the group in a given territory.

For example, if a company operates a “rotation” system and sends an employee for three months, then another for three months, then another for three months, the presence of each individual, taken separately, could be considered as not constituting a permanent establishment, but overall the company has a continuous presence over nine months which could, depending on tax treaties and the facts of the case, be considered as constituting a permanent establishment.

I anticipate your next question: from what duration should companies consider the permanent establishment issue?

To date, there is no “standardised” duration that would define the notion of permanence. While a presence of less than six months could, at first glance, be considered as limiting the risk of permanent establishment, the analysis must always be made on a case‑by‑case basis, treaty by treaty.

As regards situations where employees work remotely from home — and only these — the OECD, in its December 2025 comments on the Model Tax Convention, suggests that a permanent establishment may exist where an employee works remotely from his or her home for more than 50% of their time.

As regards mobility situations relating to work on a construction site abroad, each treaty sets a time limit beyond which the construction site would qualify as a permanent establishment (generally between 6 and 18 months, but it may be shorter or longer).

As regards mobility situations relating to the performance of services abroad, according to the UN Model Convention, these may qualify as a permanent establishment where employees from one country travel to the other country to perform a service for the benefit of a company operating in that other country and where this presence exceeds 183 days over a 12‑month period (each treaty may provide for a different time limit).

I will take this opportunity to make a parenthesis on a fairly recent development on this subject: the signing, on 18 February, of an amendment to the tax treaty between France and India. This amendment reminds us that, while there are principles, there is no universal rule.

Indeed, beyond incorporating the notion of “service permanent establishment” into the treaty, whereas it did not previously appear, this amendment provides, in a way that is quite unprecedented to my knowledge, that when the service provider and the service recipient belong to the same group, the time limit beyond which a permanent establishment is constituted is reduced to 60 days (vs. 183 days between independent companies).

To continue my digression, I can quite easily imagine the number of French groups that could be regarded as having a taxable presence in India simply because the employees responsible for assisting their Indian subsidiary could, all together, qualify as having a presence of more than 60 days on site.

It seems important to recall that French companies that invoice services to their Indian clients are generally identified by the Indian authorities since they usually apply for a PAN in order to benefit from the reduced withholding tax rates under the France–India treaty. In this context, and especially given the sometimes very aggressive position of the Indian tax authorities on international tax matters, I believe that the companies concerned should quickly carry out an audit of their presence in India to comply with the entry into force of this amendment.

With this Indian digression now closed, I will conclude the question of the time limit beyond which local presence qualifies as a permanent establishment: apart from the cases mentioned above, no other framework allows for the precise determination of a time limit beyond which permanence would be recognised. It is a matter of the practice of the tax authorities of the countries concerned.

Will the activity performed by the employee influence the analysis?

Yes. And this is the second major point in the analysis. Before addressing it, it is important to clarify that although we use the term “employee” for simplicity, all mobility situations must be analysed in the same way, whether the mobility concerns an employee or an executive, whether it involves workers under umbrella-company schemes, VIEs, freelancers, or situations where staff are seconded between companies within the same group.

As mentioned earlier, when an “employee” travels abroad in connection with a construction project or the performance of services, this will indeed influence the analysis.

However, this does not mean that mobility situations outside these circumstances should not be examined.

More specifically, outside these particular cases, the likelihood that a permanent establishment will be characterised is significantly higher if the person on mobility:

• negotiates or concludes contracts;
• legally commits the company;
• performs a decisive commercial function;
• makes strategic decisions;
• holds a key position within the company;
• regularly represents the company in the local market.

Conversely, if the activities performed abroad are auxiliary or preparatory in nature (administrative support, back‑office functions), this reduces the risk. However, the auxiliary or preparatory nature must be assessed in relation to the company’s core activity.
For example, if a company’s business consists in providing accounting services, and the mobile individual contributes to delivering those services, their activity cannot be considered auxiliary or preparatory.

Beyond the nature of the activity, the OECD — in its December 2025 Commentary on the Model Tax Convention — invites practitioners to consider the commercial interest of the company in having an employee abroad.
The OECD suggests that where a company agrees to an international remote‑work arrangement solely in response to an employee’s request (for example, a move to follow a spouse or a direct recruitment abroad), this presence should not be regarded as serving a commercial need, and this absence of commercial interest should exclude the existence of a permanent establishment.‍

Are OECD comments binding law? Can they be relied upon?

They are interpretative guidance. They provide direction, but rarely a definitive answer.
Ultimately, it is the legislation and administrative practice of the tax authorities of the countries involved — both the home and host states — that governs the analysis.

While the OECD indicates that accepting mobility purely to retain or hire an employee does not seem to qualify as a commercial interest, tax authorities may nevertheless consider that, for a strategic role, it is indeed in the company’s commercial interest to allow such mobility. Some states have even issued reservations on this point.

The only way to obtain certainty as to whether a mobility situation creates a permanent establishment is to seek an advance ruling.
However, while obtaining a ruling may appear feasible, it remains a highly restrictive exercise:

• once issued, it must be complied with strictly;
• any deviation exposes the company to penalties;
• even minor factual changes can undermine the security obtained.

It is therefore not always the approach I recommend.

In practice, caution should be prioritised.
Mobility situations involving strategic or commercial functions require the highest level of vigilance.

If a company intends to justify the absence of a permanent establishment on the basis of the absence of commercial interest, it should carefully assess what evidence it would be able to present in support of this position in the event of a tax audit.
It must gather all contextual elements supporting this argument and, above all, regularly reassess its position to ensure that it remains valid over time.

Does the fact that a person in an international mobility situation pays tax abroad attract corporate taxation?

No, there is no direct attraction. But it is an indicator.

If someone is a tax resident abroad, it means they have strong ties with that country. So the question must then be: what is their role?

A person who:

• signs contracts;
• generates revenue; or
• performs a strategic function;

for the benefit of a company established in another country must necessarily trigger a tax analysis at the level of the company concerned.

Conversely, if that person carries out activities that are strictly auxiliary or preparatory in nature within the core business, their long‑term presence abroad presents a lower risk of being classified as a permanent establishment. While this does not remove the need for an analysis, it does reduce the stakes.

EU vs non‑EU: what difference does it make in the event of a tax adjustment?

The only difference lies in the company’s ability to request the elimination of double taxation resulting from an adjustment linked to the recognition of a permanent establishment or a transfer pricing issue:

• Within the European Union, mutual agreements procedure requires tax authorities to seek to eliminate double taxation (except where serious penalties

• Outside the EU, everything depends on bilateral tax treaties. Some treaties do impose impose an obligation to achieve a result (i.e., the elimination of double taxation). Some other don't. Taxpayers may initiate the procedure, but without any guarantee that double taxation will actually be eliminated.

The risk of maintaining economic double taxation is therefore higher outside the EU.

Is the risk purely financial?

No. Three levels must be taken into account.

1. Financial risk

Adjustments relating to permanent establishments and transfer pricing often involve significant amounts.

In addition, the recognition of a permanent establishment may have consequences for the personal taxation of employees working within that permanent establishment — including the potential joint liability of the company for taxes and social charges related to that employee’s activity if the latter has not paid them voluntarily.

2. Reputational risk

A company’s tax compliance is now part of its brand image.
Media scrutiny on these issues is strong, and can raise questions among business partners (customers or suppliers) as well as potential candidates.

3. Criminal risk

In some countries, issues relating to undeclared permanent establishments — or tax fraud more broadly — fall directly under criminal jurisdiction, which may be triggered as soon as there is suspicion.
In other countries, criminal proceedings only begin once the tax authority refers the matter.

In France, since the removal of the verrou de Bercy, whenever an adjustment exceeds EUR 100,000 and is accompanied by penalties of 40% or more, files are automatically forwarded to the public prosecutor (with a six‑year recurrence window for 40% penalties).

Corporate governance must therefore consider this risk just like any other risk to which senior management is exposed.
In certain organisational structures, responsibility can rise very high — sometimes directly to the group CEO — and other individuals in the company may also be held liable depending on the structure of delegated authorities.
Finally, in some countries, the CFO (or chief accountant) may also be directly exposed, as they are legally responsible for preparing tax returns under local law.

Governance considerations are therefore central to tax risk management:

• Who serves as chair of the local subsidiaries?
• Who holds legal responsibility?
• How are delegations of authority structured?

When faced with a mobility situation, who should initiate the internal analysis?

The starting point is often operational:
“I need a sales representative in Germany.”
“I am hiring an R&D director in the United States.”

Then the HR Director or the mobility teams in large groups step in, as they are generally the ones who formalise mobility arrangements.

However, the review cannot remain limited to the individual situation of the person concerned by the mobility. It must involve:

• the tax department;
• the legal department;
• the finance and administrative department;
• and external legal and tax advisers, where necessary.

What checklist should be put in place to secure mobility?

The idea is to implement a multi‑step process that helps rebuild links between highly specialised functions, allowing for a cross‑functional workflow with clear triage:
“simple” mobility cases can be validated by HR, while “sensitive” mobility cases must trigger a tax and transfer pricing review.

The steps I recommend are as follows:

1. Map mobility

• Who is working abroad?
• For how long?
• Who is their legal employer?
• Which entity benefits from their activity?
• Is this an individual presence, or a continuous company presence (employee rotation)?

2. Analyse the functions performed and the economic flows

• Are the activities auxiliary/preparatory, or commercial/strategic?
• What costs are incurred, and where?
• What revenue does the employing entity / host entity derive from the activity performed by this employee?
• What intra‑group flows already exist in connection with this employee’s activities?

3. Check governance

• Where are strategic decisions made?
• Who has the authority to bind the company, sign, or conclude agreements?
• Who decides, who approves, and from which country?
• Is there a risk that the place of effective management could shift?
• Does mobility influence the functional profile of the entities involved?

4. Establish an internal process

• Define “standard mobility” cases that can be validated by HR vs. more sensitive cases requiring the involvement of the tax / legal / finance departments;
• Implement a periodic review of all mobility situations;
• Document the analysis to support the company’s position in the event of a tax audit.

What is the key takeaway?

International mobility must not be managed solely as an HR or social matter.

It can shift value creation, create a taxable presence, and alter the economic balance within a group.

It can therefore impact:

• the taxable base;
• the transfer pricing policy;
• corporate governance;
• the liability of senior management.

The objective is not to eliminate all risk.
The objective is to identify it, document it, and manage it.

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About SWIM

SWIM is the first platform in France entirely dedicated to connecting freelance lawyers with law firms and in‑house legal departments. Selected and incubated by the Paris Bar, SWIM is introducing the freelance model into the French legal sector, offering a new way of practising law.

For more information: www.swim.legal

About Phronesis Avocat

Phronesis Avocat is an independent law firm based in Nantes, France, specializing ininternational taxation and transfer pricing. The firm offers its clients in-depth expertise in international taxation and transfer pricing to support their global strategy and secure their international operations.

For more information: www.phronesis-avocat.com/en

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