SAP Labs France SAS provided IT-related services to its German parent company, SAP AG, and received a cost-plus 6 % remuneration.
According to the R&D agreement all income taxes, including withholding tax, applied on the amount paid by the parent company pursuant to the agreement would be paid for by the French company.
However, the French tax administration held that the French company should have included the CVAE tax in the cost base on which it was remunerated, and by not doing so SAP Laps France had indirectly transferred profit to SAP AG. A tax reassessments under the French arm’s length provisions was then issued.
SAP disagreed with the assessment and brought the case before the Administrative Tribunal.
The Administrative Tribunal issued a decision in favor of the tax administration.
“6. The contribution on the added value of companies is a burden on the company. Consequently, this tax could not be disregarded when determining the transfer price of the services provided by SAP Labs France SAS to SAP AG. Even though it is based on contractual stipulations, the failure to take this taxation into account to determine the transfer price makes it possible, by itself and independently of the level of the transfer price to which this deduction leads by applying the contractual calculation method, to presume the existence of a transfer of profits abroad, within the meaning of Article 57 of the General Tax Code. The administration was therefore not required to compare the situation of SAP Labs France SAS with that of companies in a situation of arm’s length competition. In the present case, this company did not provide any justification likely to establish that this absence of re-invoicing was sufficient consideration for it and that it would thus have had the character of a normal act of commercial management. Furthermore, the guidelines on the free choice of accounting classification of the contribution on the added value of companies contained in the press release of the Conseil national de la comptabilité (French National Accounting Council) dated 14 January 2010 have no influence on the application of the tax law, whereas in any event it results from the instruction that SAP Labs France SAS has entered this tax in account 635111, which is an account of current management expenses, without even drawing up an appendix that could justify its choice to classify this contribution as income tax, despite the indications in the same press release.
7. As a result of the above, the tax authorities were right to consider that, in accordance with Article 57 of the French General Tax Code, SAP Labs France SAS had transferred profits for 2012 in an amount corresponding to the amount of the company value added tax, which is undisputed to be €600,301, increased by the contractual margin of 6%. As a result, Labs France is not entitled to request the discharge of the disputed taxes. Consequently, its conclusions regarding the costs related to the dispute must also be rejected.”
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Click here for other translationSAP Laps France 1801945