Genefinance – previously Interga – carried out a credit risk guarantee activity for the benefit of certain foreign branches and subsidiaries of the Société Générale group to which it belonged.
Following an audit, the tax authorities considered the amount of premiums paid by foreign entities in 2008 and 2009 to be insufficient in relation to the guarantees granted and considered that the advantage thus granted characterised a transfer of profits within the meaning of Article 57 of the General Tax Code.
The tax authorities noted that Interga, which had previously been profitable, in 2008 and 2009 had recorded significant losses, as the amount of guarantee premiums received was not sufficient to cover the expenses resulting from the guarantee calls. It found that the amount of the guarantees paid to the client entities corresponded to the difference between the cost of the risk for each of these entities and twice their respective average gross operating income and that, in return for this service, the company received a premium corresponding to the sum of a percentage of the balance sheet account balances and a percentage of the off-balance sheet account balances covered by the guarantee for each of the client entities. It noted that these two percentages in the premium calculation formula had been set in 2004 on the basis of four parameters calculated at the level of all client entities, including a trigger threshold of 2.4% of the outstanding amount covered.
Genefinance brought the tax assessment to the administrative court and later the administrative court af appeal. In a decision of 9 July 2019 the appeal of Genefinance was rejected. This decision was then appealed to the Supreme Administrative Court – Conseil d’Etat.
Judgement of the Court
The Court decided in favour of Genefinance – previously Interga – and remanded the case to Administrative Court of Appeal.
“It is clear from the statements in the judgment under appeal that, in order to establish the existence of an advantage granted by Interga to certain foreign branches of the group, the court noted that while for these branches the contractual threshold for triggering the credit risk guarantee was set at 2.4% of the outstanding amount covered, the actual threshold was in fact 0% and that, as a result, they were indemnified from the first euro of a claim without paying the corresponding premiums. It ruled that, in the absence of proof that the company had obtained compensation, this advantage constituted a transfer of profits within the meaning of Article 57 of the General Tax Code. In so ruling, however, the court distorted the documents in the file, from which it did not appear that the contractual threshold for triggering the guarantee had been set, for the branches concerned, at 2.4% of the outstanding amount covered, such a threshold being provided for only at the level of all client entities and solely to contribute to the calculation of premiums. Consequently, without needing to rule on the other pleas in law of the appeal, Genefinance is entitled to request the annulment of the judgment which it is challenging.”
France vs Corp, July 2021 Conseil d'Etat Case no 434268