Rayonnages de France paid royalties and management fees to a related Portuguese company.
Following an audit for FY 2010 – 2012 the French tax authorities denied tax deductions for the payments by reference to the the arm’s length principle.
The court of first instance decided in favor of the tax authorities and Rayonnages de France then filed an appeal with the CAA of Douai.
Judgement of the CAA
The Court of appeal upheld the decision of the court of first instance and decided in favor of the tax authorities.
“However, as the Minister points out, in order to be eligible for deduction, the management services invoiced by VJ Trans.Fer to SARL Rayonnages de France must necessarily cover tasks distinct from those relating to the day-to-day management of the latter company, which were the responsibility of Mr B. as statutory manager of SARL Rayonnages de France, it being for the latter to determine, where appropriate, the remuneration to be paid to Mr B. in this connection. However, as the Minister points out, SARL Rayonnages de France, whose allegations tend to confirm that the management services invoiced by the company VJ Trans.Fer are the same as the tasks covered by its statutory management, does not provide any evidence to justify the provision of additional or even complementary services by this company, in a situation in which it is not disputed that SARL Rayonnages de France had, in the premises rented by it at the address of its registered office, the necessary means to enable it to keep its accounts and manage its invoicing, and that it had commissioned an accounting firm to assist it. Furthermore, it is not disputed that SARL Rayonnages de France no longer employed any employees after the transfer of its production activity to Portugal in July 2009, so that, as the Minister also points out, it cannot justify any need for management services in respect of the financial years ending in 2011 and 2012. As a result, SARL Rayonnages de France cannot be regarded as providing the proof, which is incumbent on it at this stage, of the existence of a consideration, effective and favourable to its own operation, for the sums it paid, during the two tax years in question, to the company VJ Trans.Fer as fees for management services, regardless of the assessment made by the Portuguese tax authorities as to the nature of those sums and even if they did not constitute additional remuneration for Mr B…. Consequently, C.. was entitled to consider the sums paid in this respect by SARL Rayonnages de France to the company VJ Trans.Fer, established in Portugal and placed under its control, as an indirect transfer of profits. Consequently, it was right to tax these sums in the hands of the company paying them, SARL Rayonnages de France, on the basis of the aforementioned provisions of Articles 57 and 39 of the General Tax Code.”CAA de DOUAI, 4ème chambre, 10_02_2022, 19DA01682, Inédit au recueil Lebon - Légifrance