France vs SAS Roger Vivier Paris, December 2024, CAA de PARIS, Case No 23PA01130

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Category: Benchmark, Range and Median, Losses, Transfer Pricing Methods, Withholding Tax (WHT) | Tag: , , , , , , , , , , , , ,
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SAS Roger Vivier Paris operates a store in Paris that sells shoes and luxury goods under the Roger Vivier brand. Since its inception in 2003, it had systematically generated negative net margins.

Following an audit for the financial years 2012 to 2014, the tax authorities considered that SAS Roger Vivier Paris had indirectly transferred profits to foreign related parties due to non-arm’s length pricing of controlled transactions – low prices for returned unsold products and excessive costs related to the promotion and marketing of the Roger Vivier brand, which it did not own.

In order to determine the arm’s length results of SAS Roger Vivier Paris, the tax authorities carried out a benchmark study and applied an operating margin of 6.76%, corresponding to the average operating margin of the study. This average operating margin was determined on the basis of the margins corresponding to the operating results reported by the companies included in the study for the financial years 2005 to 2014 inclusive. (The first quartile was 2.03%, the median quartile was 4.12% and the third quartile was 12.46%).

SAS Roger Vivier Paris appealed to the Paris Administrative Court in January 2023, which ruled that there was no need to rule on the claim for a refund of the withholding tax levied on Roger Vivier Paris for the years 2012 to 2014 and dismissed the remainder of Roger Vivier Paris’s claim.

An appeal was then lodged with the Administrative Court of Appeal.

Judgment

The Administrative Court of Appeal dismissed the appeal of SAS Roger Vivier Paris and upheld the assessment.

Excerpts in English

“18. First, contrary to what RVP maintains, the transactional net margin method applied by the department did not consist of adjusting downwards the prices of the products sold by Tod’s, but of comparing the ratio of its net margin to its turnover from its operations with that of forty-three companies operating at arm’s length and performing a distribution function in the same area of activity, the high-end clothing sector. As a result, the applicant company cannot usefully argue that the absence of any abnormality in its resale prices identified by the department would prevent a finding that its parent company, the owner of the brand, was not adequately remunerated for its brand development functions, as the Court rightly pointed out in paragraph 11 of its judgment. In addition, it has not provided any evidence to show that this method was not appropriate or that another method would have been better suited to its situation.

19. On the other hand, for the same reasons as set out in paragraph 16, RVP has no grounds for arguing that the forty-three companies in the selection of comparables could not be used as a basis for comparison and for criticising the period used to make that comparison.

20. In addition, RVP has not provided any evidence to show that the service should have applied the median net margin rate resulting from the selection of comparables of comparables, and not the average net margin rate. Moreover, neither the OECD Transfer Pricing Guidelines for Multinational Enterprises and Public Administrations, in their 2022 version, in particular those set out in point 3.62 in the event of application of the transactional net margin method, nor the comments of the tax authorities imply that such a median should be applied.
…

22. It follows from all of the foregoing that the tax authorities have established that, by re-invoicing only part of the costs of promoting and developing the Roger Vivier brand, by not applying any margin to the costs of promotion and development that it re-invoiced and by applying an average discount of 65% of the purchase price to the invoicing of unsold products returned to Tod’s, which only gave it a 4% discount on the purchase price of these products, RVP indirectly transferred profits to Dorint Holding, Gousson and Tod’s, within the meaning of the aforementioned provisions of Article 57 of the General Tax Code. RVP, which does not prove or even allege that the advantages it granted to these companies were justified by the receipt of consideration, has not provided any evidence to rebut the presumption established by these provisions.”

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Related Guidelines

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