SAS RKS, a French subsidiary of the Swedish SKF group, was engaged in manufacturing of bearings. RKS had, with the exception of 2008, had a negative results since 2005.
Following an audit for FY 2009 and 2010, the French tax administration by application of the TNMM method, determined that SAS RKS should have a net profit margin of 2.33% in 2009 and 2.62% in 2010.
The tax assessment was brought to the Montreuil Administrative Court, and in April 2018 a judgement in favor of the company was issued.
This judgement was appealed by the tax authorities to the CAA.
The CAA overturned the judgment of the Administrative Court and found in favor of the tax authorities.
“The administration has qualified as hidden income the profits mentioned in the preceding paragraphs, transferred by the company RKF to the business units of the SKF group, established abroad. While the applicant does not dispute that the reduction in its prices may constitute income distributed in a concealed manner, it submits that the administration has not adduced evidence of an intention to grant and receive a benefit without consideration. However, it follows from the above that RKS has sold its products at a loss since 2005 and that its purchasers have benefited, during the same period, from transfer prices decided each month by the Swedish parent company AB SFK in order to guarantee them a gross margin of 3 %, irrespective of the cost price of these products to their supplier. Under these conditions, which are unrelated to the formation and negotiation of prices in normal commercial relations, the intention to grant and receive a benefit is established.”CAA de VERSAILLES, 1ère chambre, 22_06_2020, 18VE02848, Inédit au recueil Lebon _ Legifrance