Neopost Italia s.r.l. had paid service fees and royalties to its French parent.
Following an audit, deductions for these intra-group transactions was adjusted by the tax authorities due to non compliance with the arm’s length principle and lack of documentation.
However, for the purpose of determining an arm’s length remuneration a benchmark study had been performed by the tax authorities in which one of the comparables was not independent.
The Court of Appeal upheld the decision of the tax authorities.
Judgement of the Supreme Court
The Supreme Court set aside the decision of the Court of Appeal and remanded the case to the court of first instance.
In regards to the comparable company in the benchmark that was not independent, the Supreme Court found that:
“it is entirely arbitrary, in comparing the two companies, to assert that the price charged by one of the two is the market price while the other is not”;
this is a ruling that affects the unlawfulness of the method used by the Office (or, rather, the identification of the comparator), which is a prerequisite for the tax assessment.”
In regards to the plea of “failure of the Court of Appeal to examine decisive facts of the case” the Supreme Court found that this was not grounds for setting aside a judgement:
“…failure to examine the evidence does not in itself constitute a failure to examine a decisive fact if the historical fact relevant to the case was nevertheless taken into consideration by the court, even though the judgment did not take account of all the evidence.
“…the reasoning, albeit brief, exists and is legitimately made by reference to the judgement of the first instance, while the impeachment does not even identify the historical fact whose examination was omitted by the appeal judge.”