TPcases

Yazaki Systems Technologies France (SY France) is wholly owned by the German company SY Systems Technologie Europe GmbH, which became Yazaki Systems Technologie Europe GmbH (SY Europe) in 2013 following the acquisition of 100% of its shares by the Japanese parent company that created the group, Yazaki Corporation Japan. The group develops and distributes wiring harnesses for the automotive industry.

SY France was subject to an audit for the years 2012, 2013 and 2014 where the tax authorities denied the deductibility of a compensation of EUR 7,000,000 paid to Renault, which was intended to compensate the latter for the damage suffered as a result of an anti-competitive agreement involving several automotive suppliers, including the Yazaki group. According to the tax authorities SY France’s payment to Renault was made on behalf of the Japanese parent which had negotiated the cartel/anti-competitive agreement.

Yazaki France filed an appeal with the Administrative Court which in judgment No. 1802237 of July 7, 2020, rejected its request for reinstatement of  the amount.

An appeal was then filed by SY France with the Administrative Court of Appeal.

Judgement of CAA

The Administrative Court of Appeal set aside the decision of the Administrative Court and allowed SY France’s deduction for the damage-payment to the Renault Group.

“4. First, it is not apparent from the terms of the letter of 22 July 2013, which related solely to the fine imposed by the European Commission, that SY Europe undertook to pay any damages owed to Renault as a result of the abovementioned anti-competitive agreement.
5. Secondly, even if the cartel was probably negotiated by the group’s parent companies and not by its national subsidiaries, SY France, as a co-contractor of Renault, was nonetheless at risk of being held liable in the first instance in the event of an action for damages brought by the latter, since the fine imposed by the European Commission on the perpetrators of an anti-competitive practice does not affect the actions for damages which the companies harmed by that practice may bring against the companies which are the perpetrators and does not in any way reduce the amount of damages which may be awarded to them. In this respect, these injured companies may rely on the European Commission’s decision, which constitutes binding evidence of the existence and unlawfulness of the cartel.
6. Thirdly, SY France had a commercial interest in paying that compensation, since Renault is its sole customer and a new contract, expected to generate a turnover over the next five years of EUR 174 846 245, was awarded to it in March 2014.
7. It follows that the payment by SY France of the sum of EUR 7 million to Renault was incurred in the interests of its operations and constitutes a deductible expense.
8. Secondly, under the terms of Article 57 of the General Tax Code, applicable to corporation tax by virtue of Article 209 of that Code, in the version in force at the time of the tax period at issue: ‘For the purposes of determining the income tax due by undertakings which are dependent (….) of companies located outside France, the profits indirectly transferred to the latter, either by way of an increase or decrease in purchase or sale prices, or by any other means, are incorporated into the results shown in the accounts. (…) “. In the case of a company which is taxable in France, these provisions establish, as soon as the administration establishes the existence of a link of dependence and a practice falling within their scope, a presumption of indirect transfer of profits which can only be usefully challenged by the company if it provides proof that the advantages it granted were justified by the obtaining of consideration.
9 It follows from the foregoing that, even supposing that Yazaki Corporation Japan had received an advantage in the form of the release from liability provided for in the settlement agreement signed with Renault, that advantage was not without consideration for SY France. SY France had an interest in paying that compensation, since, as a co-contractor of Renault, an action for damages brought by the latter company would have been of primary concern to it. In addition, the signing of the agreement enabled it to retain its sole customer and to be awarded a new contract in March 2014 representing a turnover of more than EUR 170 million over the next five years. Consequently, the administration has not shown that, by paying the compensation of EUR 7 000 000, Yazaki France granted an advantage for which there was no consideration and made an indirect transfer of profits.
10 It follows from all the foregoing that Yazaki Systems Technologies France is entitled to maintain that, by the judgment under appeal, the Tribunal administratif de Versailles wrongly rejected its claim.”

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