Convention fiscale France-Hong Kong et notion de résidence fiscale

The facts

A French company paid franchise and licence royalties to a Hong Kong company. It applied withholding tax at the reduced rate of 10% provided for in Article 12 of the France–Hong Kong agreement of 21 October 2010.

Following a tax audit covering the financial years 2014 to 2017, the Tax Authorities challenged the application of this reduced rate of 10%, considering that withholding tax should be applied at the standard corporate income tax rate, i.e. 33 1/3% at the time of the facts (FTC, Art. 182 B), on the ground that the company receiving the royalties could not be regarded as a resident of Hong Kong within the meaning of the France–Hong Kong agreement.

In this respect, the Tax Authorities noted, first, that the Hong Kong company was exempt from tax on its foreign-source income under preferential regimes and, second, that it had generated no revenue on the local Hong Kong market, so that it had paid no tax there.

The decision of the Lyon Administrative Court of Appeal

In a judgment of 3 March 2026 (No. 24LY00954, SARL Lef Hytek, C), the Lyon Administrative Court of Appeal considers that although the Hong Kong company is exempt from tax only on profits arising from foreign-source income, it is nevertheless liable to tax in Hong Kong on any Hong Kong-source income it may receive, regardless of whether it has actually paid any tax.

The Lyon Administrative Court of Appeal holds that the Hong Kong company therefore cannot be regarded as a non-resident “by reason of its status or its activity”.

The Tax Authorities further argued that it followed from the request for administrative assistance that the Hong Kong company had declared itself dormant and had only a registered address in Hong Kong, which could not confer on it the status of resident within the meaning of the France–Hong Kong agreement.

On this point, the Lyon Administrative Court of Appeal considers that the evidence does not show that such a circumstance would mean that the Hong Kong company is not liable to tax in Hong Kong by reason of its residence, its place of management or a similar criterion.

The Lyon Administrative Court of Appeal holds that the fact that the Hong Kong company declared that it carried on no activity in Hong Kong, or that it declared nil income, does not establish that it had ceased to be a tax resident of Hong Kong.