France vs General Electric France, June 2017, Conseil d État, Case No 392543

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The Supreme Administrative Court laid down the factors to be applied in determining the abnormal nature of the remuneration of intragroup loans.

The normal or abnormal nature of the remuneration of loans taken by an enterprise from another enterprise to which it is affiliated must be assessed in relation to the remuneration that the lender should pay to a financial institution or similar body to which the enterprise is not related and would borrow, under similar conditions, sums of an equivalent amount. A lender’s assessment of the default risk of the borrower, whose risk premium is the consideration, depends on the debtor’s ability to repay the debt to the obligee until maturity. The assessment of the solvency risk of the borrower, in particular summarized in the periodic ratings that the rating agencies attribute to the companies that may, where appropriate, solicit them to this effect, results from the analysis of the evolutions of a series. economic variables, both internal and external to the borrower’s environment, reflecting, inter alia, the debtor’s statement of financial position, the stability of its long-term financial policy, profitability and capital profitability; it invests, possibly compared to the average data of the sector of activity which is its, its liquidities, the room for maneuver financial which it may possibly have because of predefined circumstances, its competitive positioning or the quality of its employees and leaders. ,,, 2) The borrower’s membership in a group of companies, if it is one of the characteristics of his organization, in capital requirements, can only be taken into account for the assessment of its risk of default to the extent that it is likely to have an impact on its solvency. In this respect, if the administration, which bears the burden of proof, can presume that the bond, by a parent company, of the debts of its subsidiary has the effect of modifying the solvency risk of the beneficiary of the surety, it can not can, on the other hand, presume that belonging to a group of companies can have such an effect on its own, even though market players would be informed about the solvency risk of the parent company because of the stability of the notes, convergent and regularly updated, which are attributed to it by the different rating agencies.

The court found that the interest rate must be determined based on a stand alone credit rating of the borrowing company and that the influence of group membership on the credit rating of the borrowere can only be determined in a detailed analysis.

The court ruled in favor of General Electric France.

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France vs General Electric France Conseil_d_État_9ème_-_10ème_chambres_réunies_19_06_2017_392543

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