France vs. SA Astra Fralib (SAS Unilever France holding), December 2011, CAA no 10VE02491

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Following an unfavorable decision form the Administrative Court, the Tax Authorities asked the Court of Appeal to:

1°) to annul judgment No. 0703258 of 29 April 2010 by which the Administrative Court of Cergy-Pontoise discharged SAS Unilever France holding of its corporate tax assessments of EUR 27,188 for the financial year ended 31 December 1996 and EUR 406,484 for the financial year ended 31 December 1997 on behalf of its subsidiary SA Astra Fralib, formerly SA Astra Calvé;

2°) to charge the company with the said taxes;

Judgement of the Court of Appeal

The Court upheld the decision of the Administrative Court and dismissed the appeal of the Tax authorities.


“Considering that, in application of the principles applicable to transfer pricing defined by the Organisation for Economic Cooperation and Development (OECD), the sales prices invoiced by Astra Calvé were determined according to the cost-plus method; that the Unilever group found that the cost price of a tonne of margarine, equal to FRF 1,286 (EUR 196) per tonne, was higher than in other factories in the group; that the company determined a theoretical cost price, equal to FRF 1,040 per tonne (EUR 159), corresponding to the normal cost of manufacturing in the Asnières factory if it were modernised and operated in a fully efficient manner; that the company determined its selling price on the basis of this theoretical cost, which led it to apply a rate of inefficiency, consisting of a 22.21% reduction to the cost actually recorded, which had the effect of cancelling out Astra Calvé’s profit margin; that the administration did not question the margin applied, which was equal to 10% of the capital invested in production, but contested the reduction thus made in respect of 1997;

Considering, on the one hand, that the MINISTER OF THE BUDGET, PUBLIC ACCOUNTS AND STATE REFORM does not justify the contested adjustment by reference to the prices charged by similar companies operating normally; that the circumstances that the weighted average cost of the group’s factories, which amounts to 1,030 F per tonne and is therefore lower than the benchmark used, would amount to 1,097 F if the factories representing the extreme values were excluded, and that the margin used is negative, are not of such a nature as to establish the existence of an unjustified difference between the market value of the property which is the subject of the transaction and the price agreed upon; that thus the MINISTER OF THE BUDGET, PUBLIC ACCOUNTS AND STATE REFORM, whose argumentation is moreover limited to theoretical considerations, does not establish that the losses borne by Astra Calvé would constitute an advantage entailing a presumption of transfer of profits;

Considering, on the other hand, that the Minister also maintains that the existence of a negative margin constitutes an abnormal act of management; that, however, he does not rely on references to the market price of the goods supplied; that the applicant justifies the negative margin thus achieved by the above-mentioned comparison of production costs and by the coverage of part of its fixed costs that these transactions allowed Astra Calvé to achieve in the expectation of greater efficiency at the Asnières plant, which was in a situation of under-production; that, in these circumstances, the Minister does not establish that the losses in question were the result of abnormal commercial management; that, consequently, the substitution of legal basis requested on the basis of Article 39-1 of the General Tax Code cannot be accepted;”

“Considering that the administration questioned the price invoiced by Loders Croklaan to SA Astra Calvé for the purchase of an elaborate raw material, palm oil stearin; that, in order to justify the validity of the adjustment, the MINISTER OF BUDGET, PUBLIC ACCOUNTS AND STATE REFORM, who does not rely on comparisons with the prices charged for comparable products by similar companies operating normally, argues that the price retained in this case by the company was determined by applying a rate of return on capital invested of 13.5%, whereas the method defined by the group in this regard provides for a single rate of 10%; that this finding alone, even though the company argues that this rate of 10% concerns only finished products and not semi-finished products, that Lockers Croklaan is not a mere subcontractor but is the owner of the know-how, and that it reserves the exclusivity of the products in question for companies in the Unilever group, is not sufficient to demonstrate the existence of an unjustified difference between the agreed price and the market value of the product sold;”

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France vs SA Astra Fralib December 2011 CAA no 10VE02491FR

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