In 2009, 2010 and 2011 BSA Finances received a total of five loans granted by the Luxembourg company Nethuns, which belongs to the same group (the “Lactalis group”). Depending on the date on which the loans were granted, they carried interest rates of respectively 6.196%, 3.98% and 4.52%.
Following an audit covering the FY 2009 to 2011, the tax authorities considered that BSA Finances did not justify that the interest rates thus charged should exceed the average effective rates charged by credit institutions for variable-rate loans to companies with an initial term of more than two years. Hence, the portion of interest exceeding these rates was considered non-deductible pursuant to the provisions of Article 212(I) of the General Tax Code.
In 2017, the Administrative Court ruled in favor of BSA Finances and discharged the additional corporate tax. But this decision was appealed by the authorities to the Administrative Court of Appeal which in June 2019 overturned the decision of the lower court. The Judgement from the Administrative court of Appels was then appealed by BSA Finances to the French Supreme Administrative Court.
Decision of the Supreme Administrative Court
The Supreme Administrative Court overturned the decision from the Court of Appeal and found in favor of BSA.
“In considering that the company had not established that the margin rates applied were in line with market rates for loans made under the same conditions, whereas the Riskcalc application, which it was not disputed was fed from the company’s balance sheets and profit and loss accounts over several years, had classified its level of risk as “BBB/BBB-” on the basis of comparative ratios established by Moody’s, that the refinancing contracts produced, which made it possible to determine the actual margin rate of the loans taken out by the applicant company itself, were accompanied by details making it possible to compare the main specific conditions with the clauses of the loans in dispute and that, lastly, the combination of these elements was such as to justify, in the absence of any element to the contrary, that the credit margins applied by Nethuns were in line with market practices, the Court distorted the documents in the file submitted for its assessment.”
Conseil d'État, 8ème - 3ème chambres réunies, 11_12_2020, 433723, Inédit au recueil Lebon - Légifrance