France vs. Ballantine’s Mumm Distribution, Dec 2012, CAA no 10PA00748

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Ballantine’s Mumm Distribution (later – Société de participations et d’études des boissons sans alcool or SOPEBSA), is a French wholesaler of beverages, and was, until 1999, a fully fledged distributor on the French market of the products from the English company Allied Domecq Spirits and Wine Limited (ADSW). Both companies are owned by the Allied Domecq PLC group.

By a commission contract entered into 12 April 1999, Ballantine’s Mumm Distribution continued to market the products of Allied Domecq Spirits and Wines Limited in France but now as a commission agent.

Following an audit for FY 1997 to 2000, the tax administration considered that Ballantine’s Mumm Distribution had, for the financial year ending in 2000, on the one hand, unduly borne an expense relating to a goods insurance contract, and on the other hand, transferred its clientele to Allied Domecq Spirits and Wine Limited without consideration. The tax authorities considered that these transactions were part of an abnormal management constituting a transfer of profits by virtue of the provisions of Article 57 of the General Tax Code and consequently reintegrated into the taxable results of Ballantine’s Mumm Distribution for the said financial year, the said insurance charges as well as the indemnity to which the company had renounced at the time of the conclusion of the commissionaire contract.

The tax assessment was upheld by the administrative Court and an appeal was then filed with the Administrative Court of Appeal

Judgement of the Court

The Administrative Court of appeal overturned the decision of the Administrative Court and set aside the assessment of additional taxes.

“4. Considering that the investigation shows that Ballantine’s Mumm Distribution, acting until 1999 as a distributor-reseller of the products of the Allied Domecq group, had its own marketing department and a department specifically for the clientele of cafés, hotels and restaurants, and had developed its own strategy for the introduction of the group’s products and penetration of the French market; that, as a result, Ballantine’s Mumm Distribution must be considered to have created its own clientele, distinct from the clientele attached exclusively to the products of the brands belonging to Allied Domecq Spirits and Wine Limited;

5. Considering that in order to establish that Ballantine’s Mumm Distribution could not, without receiving compensation in return, transfer its clientele to Allied Domecq Services Limited, whose dependence on the latter is not disputed since both companies are owned by the Allied Domecq PLC group the administration maintains that the contract of 12 April 1999 by which BMD became the commission agent of Allied Domecq Spirits and Wine Limited as of 1 March 1999, concluded for a period of three years, provides that the supplier now assumes full responsibility for advertising and promoting the products, holds ownership of the stock until the final sale to customers, is liable for all damage relating to the products, assumes the risk of non-recovery and financing of the stocks, and sets and modifies the selling prices to customers and that, consequently, it follows from the characteristics of the contract that, as a result of its change in status, the commissionaire company no longer had any rights to its own clientele, which could not be transferred without consideration;

6. Considering, however, that in view of the nature of the commissionaire contract, which is not an autonomous contract but the prerequisite for the conclusion of other contracts that it signs in its own name on behalf of its principal, Ballantine’s Mumm Distribution cannot be considered as having transferred its local clientele and, consequently, as having carried out an abnormal act of management; that if, as the administration argues, the company’s remuneration as a commission agent was lower than that allocated to it as a buyer-reseller, it is clear from the investigation that it was proportionate to the functions and risks borne by it as a result of its new status; that it is common ground, moreover, that Ballantine’s Mumm Distribution’s results became profitable as of 2000; that, as a result, Ballantine’s Mumm Distribution is entitled to maintain that the court was wrong to consider that it had abnormally renounced a revenue and distributed profits to its principal and did not grant it a discharge from the disputed withholding tax and penalties to which it was subject for the year 2000 on account of this adjustment;”

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Cour administrative d'appel de Paris, 9ème Chambre, 31_12_2012, 10PA00748

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