France vs Société Générale S.A., Feb 2021, Administrative Court of Appeal, Case No 16VE00352

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Société Générale S.A. had paid for costs from which its subsidiaries had benefited. The costs in question was not deducted by Société Générale in its tax return, but nor had they been considered distribution of profits subject to withholding tax.

Following an audit for FY 2008 – 2011 a tax assessment was issued by the tax authorities according to which the hidden distribution of profits from which the subsidiaries benefited should have been subject to withholding tax in France

Société Générale held that the advantage granted by the parent company in not recharging costs to the subsidiaries resulted in an increase in the valuation of the subsidiaries. It also argued that the advantages in question were not “hidden” since they were explicitly mentioned in the documents annexed to the tax return

By judgment of 11 October 2018, the court of first instance discharged the withholding taxes as regards the absence of re-invoicing of costs incurred on behalf of the subsidiaries located in Mauritania, Burkina Faso and Benin.

Judgement of the Court

The Administrative Court of Appeal decided partially in favour of the tax authorities and partially in favour of Société Générale.

It discharged Société Générale from withholding taxes relating to non-deductible expenses called “remuneration of DeltaCrédit’s managers” and to the costs incurred on behalf of its Moldovan and Georgian subsidiaries based on an interpretation of the articles on dividends in the relevant tax treaties.


“…Société Générale did not re-invoice “expenses borne by the head office for the subsidiaries”, expressly mentioned as such in the tables No. 2058 A of non-deductible expenses appended to its returns. Société Générale also assumed the costs of “personnel seconded to foreign subsidiaries”, the “remuneration of the managers of [its Russian subsidiary] Deltacrédit”, and, as mentioned in the previous point, “ITEC transfer prices”, which it spontaneously reintegrated into its taxable income, thus acknowledging the non-deductibility of these expenses. These facts reveal that Société Générale has incurred costs that are normally borne by its foreign subsidiaries. As a result, Société Générale is presumed to have made a transfer of profits to a company located outside France, within the meaning of the aforementioned provisions of Article 57 of the General Tax Code. It is therefore incumbent on it to prove that this transfer involved sufficient consideration for it and thus had the character of an act of normal commercial management.”

“In this case, with regard to the “expenses borne by the head office for foreign subsidiaries”, the cost of “personnel seconded to foreign subsidiaries”, and “ITEC transfer prices”, the entries in the tables of non-deductible expenses, which do not specify the precise nature of the benefits granted, nor the beneficiary companies, do not in themselves reveal the existence of the gifts granted. On the other hand, the non-accounting mention made by Société Générale, in Table 2058 A of its income tax return, of the benefit granted to its Russian subsidiary DeltaCrédit by paying the remuneration of its managers, reveals both the purpose of the expense and its beneficiary. This advantage could not therefore be considered as a hidden advantage within the meaning of the provisions of Article 111c of the General Tax Code.”

“Lastly, even though no financial transfer was made, the costs unduly borne lead to disinvestment for the company which bore them and to distributed income for the company which benefited from them. It follows that, in terms of French tax law, Société Générale is only entitled to argue that the Montreuil Administrative Court was wrong to reject its request for a discharge in respect of the non-deductible charges referred to as “remuneration of DeltaCrédit’s directors”

Under Article 7 of the Convention between France and the former USSR, applicable to the income at issue: “1. Dividends paid by a resident of a State to a resident of the other State may be taxed in the first State. However, the tax so charged shall not exceed 15 per cent of the gross amount of such dividends. 2. The term “dividends” as used in this Article means income from shares as well as other income which is subjected to the treatment of income from shares by the laws of the State of which the person making the distribution is a resident. “These stipulations do not cover income deemed to be distributed by virtue of the provisions of Article 111 c) of the General Tax Code which is not subject to the same regime as income from shares. Société Générale is therefore entitled to argue that this income was not taxable in France, pursuant to Article 12 of the same agreement, which provides that “income not listed in the preceding articles (…) received by a resident of a State and arising from sources in the other State shall not be taxable in that other State. “.”

Under the terms of Article 13 of the Franco-Mauritanian, Franco-Beninese and Franco-Burkinabe tax treaties: “income from securities and similar income (income from shares, founders’ shares, interest and limited partnership shares, interest from bonds or any other negotiable debt securities) paid by companies (…) having their tax domicile in the territory of one of the Contracting States may be taxed in that State”. These stipulations, which refer only to the income from securities and similar income they list, do not concern income deemed to be distributed within the meaning of Article 111 c) of the General Tax Code. The Minister is therefore not entitled to argue that the first judges wrongly discharged Société Générale from the withholding taxes applied to the benefits granted to its subsidiaries located in Mauritania, Benin and Burkina Faso, which were not taxable in France.

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CAA de VERSAILLES, 1ère chambre, 09_02_2021, 18VE04115-19VE00405


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