Tag: Abnormal act of management

The French principle of “abnormal act of management” is based on case law. The tax administration is generally not allowed to intervene in the management of companies. However, where a company takes a decision not in its direct interest or not reflecting normal management, the tax administration can disallow the related expenses.

In French: “D’actes anormaux de gestion

France vs Philips, September 2018, Conseil d’État, Case No 405779

France vs Philips, September 2018, Conseil d’État, Case No 405779

Philips France SAS provides contract R&D to it’s Dutch parent. Compensation for the service was calculated as cost plus 10%. In the years 2003 to 2007 Philips France received government subsidies for performing R&D. These subsidies had been deducted by the company from the cost base before calculating of the cost plus remuneration. The French tax authorities issued a tax assessment where the deduction was denied and the remuneration calculated on the full cost base. The Supreme Administrative Court ruled that a deduction of subsidies from the cost base does not constitute a “transfer of profits abroad” and allowed the reduced cost base for calculation of the arm’s length remuneration.  Click here for translation CÉt_8ème_-_3ème_chambres_réunies_19_09_2018_405779 ... Continue to full case
France vs General Electric France, June 2017, Conseil d État, Case No 392543

France vs General Electric France, June 2017, Conseil d État, Case No 392543

The Supreme Administrative Court laid down the factors to be applied in determining the abnormal nature of the remuneration of intragroup loans. “The normal or abnormal nature of the remuneration of loans taken by an enterprise from another enterprise to which it is affiliated must be assessed in relation to the remuneration that the lender should pay to a financial institution or similar body to which the enterprise is not related and would borrow, under similar conditions, sums of an equivalent amount. A lender’s assessment of the default risk of the borrower, whose risk premium is the consideration, depends on the debtor’s ability to repay the debt to the obligee until maturity. The assessment of the solvency risk of the borrower, in particular summarized in the periodic ratings that the rating agencies attribute to the companies that may, where appropriate, solicit them to this effect, results from the analysis of the evolutions of a series. economic variables, both internal and ... Continue to full case
France vs. Rottapharm, Jan 2015, CE No 369214

France vs. Rottapharm, Jan 2015, CE No 369214

In the Rottapharm case The French “abnormal management action” principle was invoked. The Court overruled the decision of the tax administration under the principle of non-intervention, which prevents the tax administration from getting involved in company management. The fact that an advertising campaign costs more than the usual amount spent by the majority of companies in the same business area for similar products does not prove that the advertising campaign is an abnormal management action. Click here for translation France vs Rottapharm 23_01_2015_CE 369214 ... Continue to full case
France vs. SOCIETE D'ACQUISITIONS IMMOBILIERES, Jan 2010, CE, No. 313868

France vs. SOCIETE D’ACQUISITIONS IMMOBILIERES, Jan 2010, CE, No. 313868

In the Société d’acquisitions immobilières case the interest rate charged to a subsidiary was considered comparable with the interest rate the French entity would receive from a third party bank for an investment similar in terms and risk. The Court decided that the cash advance granted by a sub-subsidiary to its ultimate parent with which it had no business relations could constitute an “abnormal act of management” if the amount lent is clearly disproportionate to the creditworthiness of the borrowing company. Click here for translation France vs SOCIETE D'ACQUISITIONS IMMOBILIERES 22 Jan 2010 CE no 313868 ... Continue to full case
France vs. Soladi, April 1998, CAA No. 94NC00880

France vs. Soladi, April 1998, CAA No. 94NC00880

In the Soladi case the court deemed it to be an “abnormal act of management” to provide an explicit financial guarantee free of charge, unless direct actual benefit for the entity providing this support can be justified. Click here for translation France vs Soladi_30_avril_1998_CAA 94NC00880 ... Continue to full case
France vs. Montlaur Sakakini, Oct 1995, CAA, No 95LY00427

France vs. Montlaur Sakakini, Oct 1995, CAA, No 95LY00427

In the case of Montlaur Sakakini the court concluded that the arm’s length interest rate is the rate that the lender could have obtained from a third party bank. The question of “ACTE ANORMAL DE GESTION” was also addressed in this case. Click here for translation MONTLAUR SAKAKINI du_5_février_1997_94LY00427_inédit_au_recueil_Lebon . . . Click here for translation MONTLAUR SAKAKINI_25_octobre_1995 CAA_94LY00427 ... Continue to full case
France vs Baker International, April 1994, CAA, no 92BX01109

France vs Baker International, April 1994, CAA, no 92BX01109

In Baker International the court concluded that if interest is not charged in respect of deferrals of payments granted to a related company, it is considered either an abnormal act of management or is subject to Section 57 of the tax code. Click here for translation France vs Baker International 6 avril 1994 CAA 92BX01109 ... Continue to full case