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In a series of decisions issued on November 8, 2024, the Paris Administrative Court of Appeal applied the concept of "beneficial owner" in VAT matters to reclassify the true recipient of commissions received by American Express Carte France (AECF), and thus deny it the right to deduct input VAT.
The approach adopted by the court was predominantly economic: it disregarded contractual stipulations to identify the entity that, in its view, truly benefited from the service. However, the concept of "beneficial owner" has no formal basis in the VAT Directive or in French VAT law.
On April 10, 2026, the Conseil d'État, sitting in joint chambers, annulled these decisions on the point relating to the issuer commission (CE, April 10, 2026, American Express Carte France, n° 500369 & 500372).
While confirming that economic reality constitutes a fundamental criterion for the application of the common VAT regime (in accordance with CJEU, Paul Newey, C-653/11), the Conseil d'État ruled that contractual stipulations, when not contradicted by any objective evidence, constitute strong and decisive evidence for identifying the true recipient of a service.
A purely indirect economic benefit is insufficient to disregard the contractual and operational reality of a service rendered.
For multinational groups, this ruling provides important clarifications: economic substance is decisive, but the contract remains the primary point of reference unless there is evidence demonstrating that it does not reflect economic reality.
In VAT matters, the identification of the recipient of a service is essential in two respects:
French law adds a third dimension, specific to financial services: under Articles 261 C, 1° and 271, V, b of the General Tax Code (CGI), certain banking and financial operations ordinarily exempt from VAT nevertheless give rise to a right to deduct when rendered to persons established outside the European Union.
The identity and location of the recipient therefore have direct cash flow consequences for financial sector operators.
The starting point is that contractual stipulations normally reflect economic and commercial reality and thus constitute a key element for identifying the service provider and recipient in a service transaction (CJEU, Paul Newey, June 20, 2013, C-653/11).
However, the Court of Justice has recognized that contractual clauses may be disregarded when they do not reflect economic reality, particularly when they are part of a purely artificial arrangement aimed solely at obtaining a tax advantage. In such a case, the tax authorities and courts may look beyond the contract to identify the true counterparty to the transaction.
The Conseil d'État has adopted this approach and expressly stated that, "for the application of articles 259 and 259 B of the French Tax Code (CGI), the recipient is the person who is the effective beneficiary of the service" (CE, October 9, 2015, no. 371794, Sté Bayer Cropscience).
Before the AMEX litigation, the concept had been invoked mainly in territoriality disputes, to determine whether a service was subject to French VAT based on the location of its recipient.
AECF (FR) is the French card-issuing entity within the American Express group. It issues and markets American Express payment cards in France under a license granted by TRS Co. (US), a US-law entity that acts as the network operator.
American Express Payment Services Limited (AEPSL - UK), a UK entity, acts as the acquirer: it registers merchants within the network and pays them within five days of each transaction (less a discount). The resulting claim is then settled between AEPSL (UK) and TRS Co. (US) under their bilateral agreement.
Under the contract between AECF (FR) and TRS Co. (US), AECF reimbursed TRS Co. for the amounts it had advanced to AEPSL (UK) for cardholder purchases, less an "issuer commission" of 1.15% of cardholder spending (AECF's remuneration).
AECF (FR) treated this commission income as a financial service provided to a non-EU entity (TRS Co. (US)), entitling it to a deduction in accordance with article 271, V, b of the French Tax Code (CGI).
The Paris Administrative Court of Appeal considered that TRS Co.:
The court concluded that AECF's service was in substance rendered to AEPSL (the entity that, in practice, was able to settle payments to merchants) and not to TRS Co.
To reach this conclusion, the court ruled that the absence of any direct contractual link between AECF and AEPSL was not decisive. The economic reality of the transaction took precedence over the contractual designation of TRS Co. as the recipient of the service.
AEPSL (UK) being established in the United Kingdom (an EU member state at the time of the operations in question), the derogation scheme provided for in Article 271, V, b of the CGI was inapplicable.
The issuer commission therefore did not give rise to any right to deduction for AECF (FR), which led to significant VAT and payroll tax reassessments.
The term "beneficial owner" is well established in direct taxation and international conventions, where it is used to deny treaty benefits to conduit entities lacking substance and actual enjoyment of income.
However, its transposition to VAT is problematic.
For VAT purposes, what matters is not to determine who ultimately derives an economic benefit from the transaction in the broadest sense, but rather who is the true recipient of the service: the entity to which the service is objectively provided, which uses it, negotiates it, pays for it, and integrates it into its own economic activity. VAT is a tax based on contractual flows.
The Conseil d'État annulled the decisions of the Paris Administrative Court of Appeal (CAA) regarding the issuer commission, citing two distinct grounds: misrepresentation of facts and error of law.
Regarding the facts, the Conseil d'État noted that the CAA had misinterpreted the AEPSL (UK) / TRS Co. (US) contract.
Contrary to what the Court of Appeal had stated, TRS Co. paid AEPSL more than the amounts AEPSL had advanced to merchants (i.e., the amounts increased by a 0.35% commission), and not less.
AEPSL was thus definitively released from credit risk on cardholder expenditures as soon as TRS Co. paid the full amount.
The Court had misunderstood the contracts.
The Conseil d'État precisely identified the content of the service actually rendered by AECF to TRS Co.:
These two elements constituted the actual economic content of the service provided by AECF to TRS Co. under their bilateral contract. Nothing in the record contradicted this interpretation of the contractual stipulations.
In a broadly applicable statement, the Conseil d'État (Council of State) reiterates the principle established by the CJEU's Paul Newey judgment.
Economic and commercial reality is a fundamental criterion, but the Council immediately qualifies it with a decisive clarification:
The Conseil d'État consequently ruled that AECF could not be deprived of the benefit of its contractual relationship with TRS Co. solely because another entity in the network (AEPSL) derived operational advantages from AECF's activity. An indirect economic advantage, however real, is not sufficient to reclassify the recipient of a service.
Key point — Substitution of legal basis dismissed
The minister had attempted to substitute a different legal basis to uphold the tax reassessment confirmed by the Paris Administrative Court of Appeal (CAA): he argued that TRS Co.'s service was in fact provided to a permanent establishment of TRS Co. located in the EU. The Conseil d'État refused to examine this argument, as it required an assessment of facts that exceeds the powers of a cassation judge. It will be up to the Paris CAA, ruling on remand, to determine whether this subsidiary argument can be upheld.
The Conseil d'État annulled the first and second provisions of the Paris CAA's judgments and referred the cases back to it for a new ruling within the scope of the annulment. The second argument raised by the minister (permanent establishment within the EU) therefore remains open for consideration on remand. Practitioners should closely follow the outcome of this procedure.
The judgment also addresses a distinct point (the "incentive commission" paid by TRS Co. (US) to AECF (FR) as part of the co-badging partnership with Air France-KLM), and the Conseil d'État unreservedly confirmed the analysis of the Paris CAA.
This commission was calculated by reference to an overall profitability objective for AECF's entire card issuance activity, without a direct link to the incremental revenue generated by the co-badged card, and did not constitute consideration for a defined service.
It was rightly classified as a mere balancing subsidy, a supplement intended to maintain the overall profitability of AECF's activity, and not a subsidy directly linked to the price of a specific taxable transaction.
It therefore falls outside the numerator of AECF's VAT deduction pro rata, but is included in the basis for payroll tax.
The Conseil d'État did not eliminate economic analysis in VAT matters.
However, it confirmed a hierarchy:
When a contract designates a non-EU entity as the recipient of services for VAT purposes, the group must be able to demonstrate that it is not a mere paper arrangement and that the non-EU entity has real substance and effectively bears the economic burden of the service.
The Conseil d'État's decision constitutes a direct rejection of the idea that the entity which ultimately derives an economic benefit from a service is necessarily the VAT recipient. In complex multilateral structures (payment networks, supply chain organizations, treasury centers), the same service can benefit several entities in different ways.
The determining question is not who benefits from the service in the abstract, but to whom the service is actually rendered: who bears the contractual obligation, who is exposed to financial risk, and who integrates the service into their own taxable activity.
The term "beneficial owner" is borrowed from direct taxation and does not appear in the VAT Directive. Its use in French administrative case law should be understood as an abbreviated formulation allowing for the identification of the true recipient of a service (as opposed to the nominal recipient).
It does not introduce a doctrine into VAT whereby the entity that derives the greatest economic value from a transaction, or that is at the top of a value chain, would become the presumed VAT recipient.
Groups should be wary of any attempt by the authorities to invoke reasoning based on the "beneficial owner" to reallocate VAT consequences within a group structure, in the absence of evidence demonstrating the artificial nature of the contractual arrangement.
The Conseil d'État's decision of April 10, 2026, provides welcome clarification. It confirms that VAT analysis cannot be reduced to a purely formal reading of contracts; economic substance is paramount.
At the same time, it firmly rejects an interpretation that would allow the authorities to reconstruct the recipient of a service by reference to indirect economic benefits, in the absence of any evidence demonstrating the artificial nature of the contractual provisions.
The "beneficial owner" doctrine in VAT, if it exists as an autonomous concept at all, must remain strictly confined to cases where the contract is clearly disconnected from commercial reality.
Beyond this boundary, the contract (reflecting the true allocation of obligations, risks, and functions between the parties) retains its full probative value.
The matter is not closed: the referral to the Paris CAA will allow for the determination of whether the government's subsidiary argument based on permanent establishment will be accepted.
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