International business

What is international taxation?

International taxation covers the laws and regulations governing the taxation of income, profits and financial flows where more than one jurisdiction may claim a right to tax. These situations arise as soon as a company sells goods or services abroad, has subsidiaries or employees in different countries, or receives income from international partners.

The central issue is to determine where income is taxable and how tax obligations are allocated between the States concerned. Without a clear framework, the same transaction may be taxed several times. Bilateral tax treaties and international tax law provide the rules needed to organise this allocation and ensure compliance with the various local laws.

The main challenges for companies

Managing regulatory complexity

Each country applies its own tax system. Business leaders must understand the various taxes that apply, anticipate local constraints and organise their operations so as to avoid a disproportionate tax burden. This complexity grows as activities expand into new markets.

Limiting the risk of double taxation

Double taxation occurs when the same income is taxed in more than one country. This risk can significantly reduce the profitability of an international project. The French treaty network, one of the densest in the world with around 130 bilateral tax treaties in force, allocates taxing rights between the contracting States and neutralises most double taxation situations. MOSAIK's direct presence in Mexico City and Hong Kong is a practical advantage here: we work daily with the France-Mexico and France-Hong Kong tax treaties, two instruments at the heart of our clients' operations in Latin America and Asia-Pacific.

Meeting BEPS and tax transparency requirements

The OECD initiatives against base erosion and profit shifting (BEPS) have led to a significant tightening of documentation and reporting obligations for international groups: transfer pricing documentation, country-by-country reporting (CbCR) and automatic exchange of information. Failure to comply exposes groups to growing penalties. The concept of permanent establishment was thoroughly reworked by Action 7 of the BEPS Plan and by the Multilateral Instrument, which extended the dependent agent test to persons playing the principal role in the conclusion of contracts (even without formal signature), introduced an anti-fragmentation clause to prevent the artificial splitting of activities, and redefined the service permanent establishment. Case law of the French Conseil d'État (France's supreme administrative court) has applied these new definitions to digital platform business models and is now an essential reference for assessing the taxable presence of digital economy companies.

Pillar One and Pillar Two: the new global architecture

The OECD / G20 project on the tax challenges of digitalisation has produced two structural mechanisms. Pillar One reallocates a fraction of the residual profits of the largest groups to market jurisdictions, regardless of physical presence. Its implementation, which depends on the entry into force of the Multilateral Convention, remains on hold in 2026 but is already shaping bilateral negotiations and the positions of major groups.

Pillar Two, by contrast, is now in force. Transposed into French law by Article 33 of the Finance Act for 2024, it imposes a 15 percent minimum effective tax rate on groups with consolidated revenue exceeding 750 million euros, in each jurisdiction where they operate. The regime is built around the qualified domestic minimum top-up tax (QDMTT), the income inclusion rule (IIR) and the undertaxed profits rule (UTPR). MOSAIK assists its clients at the three critical stages: eligibility analysis for the transitional CbCR Safe Harbour, computation of the effective tax rate country by country, and preparation of the GloBE Information Return (GIR).

The fundamental concepts

Permanent establishment

Permanent establishment is a central concept that determines whether a company has a sufficient presence in a country to be taxed there on its profits. It may take the form of an office, a warehouse, a construction site or an activity habitually carried out by a dependent agent. Once a permanent establishment is recognised, the State may tax the income attributable to it. The characterisation of a permanent establishment is often a major issue in international tax audits.

Transfer pricing

Where transactions take place between entities of the same group located in different countries, they must be carried out on market terms (the arm's length principle). The tax authorities may challenge the prices applied if they consider that their effect is to shift profits artificially to lower-tax countries.

Withholding taxes

Cross-border payments (dividends, interest, royalties) are generally subject to withholding taxes in the source country. Rates and procedures vary according to local law and the applicable bilateral tax treaties. Rigorous management of these withholdings is essential to avoid reassessments.

Strategies for managing international taxation

Structuring activities

The choice of location for subsidiaries, holding companies and decision-making centres plays a decisive role in managing international taxation. A well-thought-out organisation aligns taxation with economic objectives, while complying with local obligations and economic substance requirements.

Documentation and compliance

Companies must maintain full, up-to-date documentation on their international activities, their financial flows and the rationale for the structures adopted. This practice makes it possible to demonstrate compliance in the event of an audit and to respond quickly to requests from the tax authorities.

The Paris, Mexico City and Hong Kong triangle

For most of our clients' operations, international taxation is played out across three regions: the European Union and the French treaty network for structuring holdings and financing; Latin America, where Mexico is the natural hub for accessing Latin American markets, with its own transfer pricing rules and CFC regime; and Asia-Pacific, where Hong Kong combines a territorial tax regime, a bilateral treaty with France and direct access to the mainland Chinese market. MOSAIK's direct presence in these three regions allows us to handle, as one integrated team, transactions that would otherwise require three separate firms, with all the delays, costs and loss of information that implies.

The risks of poorly managed international taxation

• Unexpected tax charges: income or financial flows that are not properly identified may be subject to unexpected and heavy taxation;
• Reassessments and penalties: the tax authorities may challenge structures or inaccurate returns, with significant penalties;
• Reputational risk: poor tax management can undermine the confidence of partners and investors;
• Operational blockages: difficulties repatriating funds or structuring investments can slow international growth.

Frequently asked questions

What is a permanent establishment?

It is a sufficient presence of a company in a country for the income generated there to be subject to local tax. Its characterisation depends on precise criteria set out in tax treaties and domestic law, and may result in particular from a fixed place of business or the activity of a dependent agent.

How can double taxation be avoided?

Through bilateral tax treaties, which allocate taxing rights between States, and through rigorous planning of structures and financial flows. Analysing each cross-border transaction in advance makes it possible to identify the applicable tax treatment and avoid being taxed twice on the same income.

What is transfer pricing?

Transfer prices are the prices at which entities of the same group located in different countries sell goods or services to one another. They must comply with the arm's length principle, meaning they must reflect the terms that independent parties would have agreed in comparable circumstances.

How do you secure a holding structure ahead of a cross-border investment?

Structuring requires a three-tier analysis: (i) characterisation of the holding company (operational, active management or passive) under French and foreign law, (ii) eligibility for the EU directives or the applicable bilateral treaties, which is conditional on substance and beneficial ownership, (iii) protection through a binding advance tax ruling or an advance pricing agreement where the stakes justify it. MOSAIK conducts this analysis as an integrated Paris / Mexico City / Hong Kong team, depending on the geography of the transaction.