France vs ST Dupont , April 2022, CAA of Paris, No 19PA01644

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Category: Burden of Proof, Losses that continue indefinitely, Transfer Pricing Methods | Tag: , , , , , , , , , , ,
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ST Dupont is a French luxury manufacturer of lighters, pens and leather goods. It is majority-owned by the Dutch company D&D International, which is wholly-owned by Broad Gain Investments Ltd, based in Hong Kong.
ST Dupont is the sole shareholder of distribution subsidiaries located abroad, in particular ST Dupont Marketing, based in Hong Kong.

Following an audit, an adjustment was issued where the tax administration considered that the prices at which ST Dupont sold its products to ST Dupont Marketing (Hong Kong) were lower than the arm’s length prices.

“The investigation revealed that the administration found that ST Dupont was making significant and persistent losses, with an operating loss of between EUR 7,260,086 and EUR 32,408,032 for the financial years from 2003 to 2009. It also noted that its marketing subsidiary in Hong Kong, ST Dupont Marketing, in which it held the entire capital, was making a profit, with results ranging from EUR 920,739 to EUR 3,828,051 for the same years.”

Applying a CUP method the tax administration corrected the losses declared by ST Dupont in terms of corporation tax for the financial years ending in 2009, 2010 and 2011.

Not satisfied with the adjustment ST Dupont filed an appeal with the Paris administrative Court where parts of the tax assessment in a decision issued in 2019 were set aside by the court (royalty payments and resulting adjustments to loss carry forward)

Still not satisfied with the result, an appeal was filed by ST Dupont with the CAA of Paris.

Judgement of the CAA

The Court of appeal dismissed the appeal of ST Dupont and upheld the decision of the court of first instance.

Excerpt

“It follows from the above that the administration provides proof of the existence and amount of an advantage granted to ST Dupont Marketing that it was entitled to reintegrate into ST Dupont’s results, pursuant to the provisions of Article 57 of the General Tax Code, before drawing the consequences on the amount of the deficits declared by this company in terms of corporation tax, on the liability of the sums thus distributed to the withholding tax and on the integration in the base of the minimum contribution of professional tax and the contribution on the added value of companies.

29. It follows from all the foregoing that ST Dupont is not entitled to maintain that it was wrongly that, by the contested judgment, the Paris Administrative Court rejected the remainder of its claim. Its claims for the annulment of Article 4 of that judgment, for the discharge of the taxes remaining in dispute and for the restoration of its declared carry-over deficit in its entirety must therefore be rejected.”

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France CAA de PARIS, 2ème chambre, 13_04_2022, 19PA01644, Inédit au recueil Lebon

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