During tax audits covering the 2008 to 2011 financial years, Société Générale was found to have incurred various expenses for the benefit of foreign subsidiaries. These expenses included costs borne by the head office for staff seconded to subsidiaries, and IT services referred to as ITEC transfer pricing. The expenses were not reinvoiced, or were insufficiently reinvoiced, to the subsidiaries. Although Société Générale reintegrated the amounts into its taxable corporate income, no reimbursement was obtained from the subsidiaries.
The tax authorities considered that Société Générale had granted advantages to its foreign subsidiaries by bearing expenses that were incumbent upon them, without adequate consideration. They concluded that this constituted hidden distributions within the meaning of Article 111 of the General Tax Code. As the beneficiaries were non resident entities, the corresponding amounts were subject to withholding tax under Article 119 bis. The administration held that the reintegration of the amounts in the taxable income by Société Générale did not preclude characterization as hidden distributions, since the nature of the advantages and the beneficiary entities were not sufficiently identified. The authorities also rejected the argument that increased subsidiary value or regulatory capital considerations constituted valid consideration.
Société Générale challenged the withholding tax assessments before the Montreuil Administrative Court, which granted partial relief limited to distributions to certain African subsidiaries. On appeal, the Versailles Administrative Court of Appeal granted additional relief for specific items but rejected the remainder of the claims.
Société Générale then appealed to the Conseil d’État, arguing that the tax authorities had failed to prove the existence, amount, hidden nature, and absence of consideration for the alleged distributions. It also relied on Article 57 of the General Tax Code, the Franco Chinese tax treaty, and the doctrine protection under Article L. 80 A of the Book of Tax Procedures.
judgment
The Conseil d’État set aside the judgment of the Versailles Administrative Court of Appeal insofar as it was based on an erroneous application of Article 57, noting that the assessments were made solely under Articles 111 and 119 bis. However, ruling on the merits, the Conseil d’État upheld the characterization of the expenses as hidden distributions and confirmed that the administration had sufficiently established the existence of advantages granted without consideration.
It held that indirect distributions such as preservation of subsidiary solvency or increased shareholding value did not constitute valid consideration. The court also confirmed that the benefits granted to the Chinese subsidiary did not qualify as dividends under the Franco Chinese tax treaty and were taxable in France as other income subject to withholding tax. The remainder of Société Générale’s claims was dismissed and the withholding tax assessments were largely upheld.