France vs. LAINIERE DE PICARDIE, March 1989, Supreme Administrative Court, Case No 77581

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Article 9 of the Franco-Brazilian Tax Convention of 10 September 1971 contains provisions according to which, in the case of companies that are not at arm’s length from each other, profits that have been transferred directly or indirectly by a company of one of the contracting States to a company of the other contracting State may be included in the profits of the first company and taxed accordingly.

It is clear from these provisions that they allow the administration of the State to which an enterprise which, by virtue of its situation and operations, falls within their scope belongs, to apply the domestic tax law.

On the basis of the provisions of Article 57 of the CGI, the administration reintegrated into the company’s results subject to corporate income tax the commissions, evaluated at the rate of 0.50%, that the company should have received as remuneration for the guarantees that it had granted to its Brazilian subsidiary as a guarantee for loans contracted by the latter with a French bank.

Excerpt from the Judgement

Considering that the company “LAINIERE DE PICARDIE” justifies that the loans taken out by the Brazilian company “Intece” with a French bank and which it guaranteed allowed a significant development of its sales to the Brazilian company during the years mentioned above; that, consequently, the company “LAINIERE DE PICARDIE” must, in the circumstances of the case, be considered as providing proof that the apparent liberality that it granted by waiving the payment of a commission by its subsidiary in remuneration of the service that it rendered to it had a direct counterpart in accordance with the safeguarding of its own commercial interest and, consequently, did not constitute an indirect transfer of profits abroad within the meaning of the aforementioned article 57 of the general tax code”

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France vs LAINIERE DE PICARDIE Conseil d'Etat 3 mars 1989, Case No 77581

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