SA Exel Industries marketed its products abroad through subsidiaries or independent agents, depending on the territory. In Brazil, India, Argentina, Russia and Portugal it sold its products through subsidiaries under either a buy/sell distributor agreement or a commissionaire agreement. In Iran, Turkey and South Korea it sold through independent agents to whom it paid a commission. The tax authorities considered that the commission paid to the independent agents was a CUP and determined the commission paid to the subsidiaries on that basis. The remuneration of the subsidiaries in excess of the commission (margin) paid to the independent agents was considered to be a transfer of profits abroad. SA Exel Industries appealed against this assessment, arguing that the subsidiaries performed much more important functions than independent agents. It also argued that there were significant market differences, since the subsidiaries operated in highly strategic markets where the major car manufacturers were dominant, while the other markets in which the independent agents operated ... Read more

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 ... Read more

A German corporation,”G Corp” held interests in domestic and foreign companies in the year in dispute (2005). G Corp granted loans to various subordinate companies – resident in France and the USA. These loans were mainly at fixed interest rates; instead of a fixed interest rate, an annual participation of 12.5% in the balance sheet profit of the subordinate company, limited to a maximum amount of 25% of the loan volume, was agreed as consideration for one loan. No collateral was provided. In the year in dispute, G Corp wrote off these loans against taxable profits. G Corp also transferred assets at book value to a Maltese subsidiary company, of which it was the sole shareholder, and contributed the shares in this company, pursuant to section 23(4) of the Reorganisation Tax Act applicable in the year in dispute, also at book value, to another Malta-based company in the context of a capital increase against the granting of company rights. Finally, ... Read more

Following a restructuring of the Italien Piaggio group, SAS Piaggio France by a contract dated January 2 2007, was changed from an exclusive distributor of vehicles of the “Piaggio” brand in France to a commercial agent for its Italian parent company. The tax authorities held that this change resulted in a transfer without payment for the customers and applied the provisions of article 57 of the general tax code (the arm’s length principle). A tax assessment was issued whereby the taxable income of SAS Piaggio France was added a profit of 7.969.529 euros on the grounds that the change in the contractual relations between the parties had resultet in a transfer of customers for which an independent party would have been paid. In a judgement of October 2019, Conseil dÉtat, helt in favor of the tax authorities and added an additional profit of 7.969.529 to the taxable income of Piaggio France for the transfer of customers to the Italian parent ... Read more

Following a restructuring of the Italien Piaggio group, SAS Piaggio France by a contract dated January 2 2007, was changed from an exclusive distributor of vehicles of the “Piaggio” brand in France to a commercial agent for its Italian parent company. The tax authorities held that this change had resulted in a transfer without payment for the customers and applied the provisions of article 57 of the general tax code (the arm’s length principle). A tax assessment was issued whereby the taxable income of SAS Piaggio France was added a profit of 7.969.529 euros on the grounds that the change in the contractual relations between the parties had resultet in a transfer of customers for which an independent party would have been paid. The Judgement of the Court The court helt in favor of the tax authorities and added an additional profit of 7.969.529 to the taxable income of the SaS Piaggio France for the transfer of customers to the ... Read more

In this case, the French tax authorities questioned the method implemented by GE Healthcare Clinical Systems to determine the purchase price of the equipment it was purchasing from other General Electric subsidiaries in the United States, Germany and Finland for distribution in France. The method used by the GE Group for determining the transfer prices was to apply a margin of 5% to all direct and indirect production costs borne by the foreign group suppliers. For the years 2007, 2008 and 2009 the tax authorities applied a TNM-method based on a study of twenty-six comparable companies. The operating results of GE Healthcare France was then determined by multiplying the median value of the ratio “operating result/turnover” from the benchmark study to the turnover in GE Healthcare Clinical Systems. The additional profit was declared and qualified as constituting an indirect transfer of profits to the related party suppliers in the General Electric Group. The GE Group disagreed and brought the case ... Read more

SAS Cooper Capri’s belongs to the American group Cooper Industries. The Group carries out a parts production and sales activity in the context of two branches, a “construction” branch and an “industry” branch which produces, in particular, cable glands Cooper Capri was subject to an audit at the end of which the administration considered that it had indirectly transferred part of its profits to companies belonging to the same group located outside France and, consequently, incorporated the profits thus transferred into the result charged to the accounts for FY 2007 The company asked the Administrative Court to discharge the additional taxes. In November 2014 the request of Cooper Capri was rejected and the assessment of the tax authorities upheld. Cooper Capri then filed an appeal with the Court of Appeal. According to Cooper Capri, the tax administration had not demonstrated the granting of an advantage to related companies located abroad; in fact, if the ratio between the gross margin and ... Read more

During the period from 1 January 2003 to 31 December 2005 all the products marketed by GE Healthcare Clinical Systems (France), a company wholly owned by the American company GE Medical Systems Information Technologies and the exclusive distributor in France of medical equipment produced by the General Electric group, were supplied to it by its German subsidiary, GE Medical Systems Information Technologies (MSIT) GmbH, of which it held 100% of the capital. Transfer prices were determined based on the cost plus method. Following an audit of the accounts of GE Healthcare Clinical Systems, the tax authorities dismissing the cost plus method and instead set up a sample of eight companies considered comparable to GE Healthcare Clinical Systems. The difference between the operating loss declared by this company and its arm’s length operating results, calculated on the basis of the median of the net operating margin of the eight companies deemed to be comparable, constituted an indirect transfer of profits granted ... Read more

Following an unfavorable decision form the Administrative Court, the Tax Authorities asked the Court of Appeal to: 1°) to annul judgment No. 0703258 of 29 April 2010 by which the Administrative Court of Cergy-Pontoise discharged SAS Unilever France holding of its corporate tax assessments of EUR 27,188 for the financial year ended 31 December 1996 and EUR 406,484 for the financial year ended 31 December 1997 on behalf of its subsidiary SA Astra Fralib, formerly SA Astra Calvé; 2°) to charge the company with the said taxes; Judgement of the Court of Appeal The Court upheld the decision of the Administrative Court and dismissed the appeal of the Tax authorities. Excerpts: “Considering that, in application of the principles applicable to transfer pricing defined by the Organisation for Economic Cooperation and Development (OECD), the sales prices invoiced by Astra Calvé were determined according to the cost-plus method; that the Unilever group found that the cost price of a tonne of margarine, ... Read more

The administration found that the reimbursement of a charge represented a transfer of profits abroad where the French company has not substantiated the benefit of the services which the French company could perform itself. Incomplete documents submitted by the company was not considered proof of the purported benefits. This analysis was confirmed by the French Administrative Court of Appeal. Excerpt “….Although it [the company] claims that the expenses in question were in the nature of services relating to technical assistance provided in its own interest, it does not establish this by means of the fragmentary and general documents that it produces, whereas it asserts, moreover, that the expenses that it reimbursed paid for the coordination of the general policy of the Borsumif Y group. .. in commercial, legal and financial matters between the various companies belonging to the group; that it does not justify either the existence of the financial counterpart that it alleges by producing documents attesting to the ... Read more

Article 9 of the Franco-Brazilian Tax Convention of 10 September 1971 contains provisions according to which, in the case of companies that are not at arm’s length from each other, profits that have been transferred directly or indirectly by a company of one of the contracting States to a company of the other contracting State may be included in the profits of the first company and taxed accordingly. It is clear from these provisions that they allow the administration of the State to which an enterprise which, by virtue of its situation and operations, falls within their scope belongs, to apply the domestic tax law. On the basis of the provisions of Article 57 of the CGI, the administration reintegrated into the company’s results subject to corporate income tax the commissions, evaluated at the rate of 0.50%, that the company should have received as remuneration for the guarantees that it had granted to its Brazilian subsidiary as a guarantee for ... Read more

If the assessment of the abnormal nature of a management act poses a question of law, it is, as a general rule, up to the administration to establish the facts on which it bases itself to invoke this abnormal nature. However, this principle can only be applied in compliance with the legislative and regulatory provisions governing the burden of proof in tax litigation. The determination of the burden of proof stems mainly, in the case of companies subject to corporation tax, from the nature of the accounting operations to which the management acts challenged by the administration gave rise. If the act contested by the administration has resulted, in the accounts, in an entry relating, as is the case here, to travel expenses, to charges of the nature of those referred to in Article 39 of the same Code and which are deducted from the net profit defined in Article 38 of the Code, the administration must be deemed to ... Read more