In this case, the French tax authorities questioned the method implemented by GE Healthcare Clinical Systems to determine the purchase price of the equipment it was purchasing from other General Electric subsidiaries in the United States, Germany and Finland for distribution in France. The method used by the GE Group for determining the transfer prices was to apply a margin of 5% to all direct and indirect production costs borne by the foreign group suppliers.
For the years 2007, 2008 and 2009 the tax authorities applied a TNM-method based on a study of twenty-six comparable companies. The operating results of GE Healthcare France was then determined by multiplying the median value of the ratio “operating result/turnover” from the benchmark study to the turnover in GE Healthcare Clinical Systems.
The additional profit was declared and qualified as constituting an indirect transfer of profits to the related party suppliers in the General Electric Group.
The GE Group disagreed and brought the case to Court.
First, the Tribunal dismissed the application by judgment of 18 May 2015, as did the Versailles Administrative Court of Appeal in a judgment of 9 February 2017.
Finally, the Conseil d’Etat rejected the appellant’s appeal on the ground that the administration had established the existence of a benefit constituting a transfer of profits. When the tax authorities note that the prices charged to a company established in France by a foreign related company are higher than those charged to independent parties, without this difference being explained by the different circumstances, it is entitled to reinstate in the results of the French company an amount equal to the advantage. The Conseil d’Etat also confirmed that a benchmark study could include companies whose turnover was not identical to that of the taxpayer.