WB Ambassador took out two loans with its Luxembourg parent company and another group company, each bearing an annual interest rate of 7%.
Following an audit, the tax authorities considering that the company did not justify that the 7% interest rate of the above-mentioned intra-group loans corresponded to the rate it could have obtained from independent financial institutions or organisations under similar conditions and partially disallowed deductions of the interest incurred.
Supreme Administrative Court
The Supreme Administrative Court overturned the decision of the Administrative court of Appeal and ruled in favor of the WB Ambassador. It stated that the Lower Court had erred in law in ruling out the possibility that a company, in order to justify the rate it could have obtained from independent financial institutions for a loan granted under similar conditions, could rely, in order to assess that rate, on the yield of bond issues granted by undertakings in comparable economic conditions. Consequently, WB Ambassador was entitled, without needing to examine the other pleas in law of its appeal, to seek the annulment of the judgment.
“The borrowing company, which has the burden of proving the rate it could have obtained from independent financial institutions or organisations for a loan granted under similar conditions, may provide this proof by any means. In this respect, in order to evaluate this rate, it may, where appropriate, take account of the yield on bonds issued by undertakings in comparable economic conditions, where such bonds constitute, in the circumstances under consideration, a realistic alternative to an intra-group loan.”Conseil d'État, 9ème chambre, 10_12_2020, 428522, Inédit au recueil Lebon - Légifrance