France vs Philips, September 2018, Conseil d’État, Case No 405779

Philips France SAS provides contract R&D to it’s Dutch parent. Compensation for the service was calculated as cost plus 10%. In the years 2003 to 2007 Philips France received government subsidies for performing R&D. These subsidies had been deducted by the company from the cost base before calculating of the cost plus remuneration.

The French tax authorities issued a tax assessment where the deduction was denied and the remuneration calculated on the full cost base.

The Supreme Administrative Court ruled that a deduction of subsidies from the cost base does not constitute a “transfer of profits abroad” and allowed the reduced cost base for calculation of the arm’s length remuneration. 

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