CAA de PARIS, 2nd chamber, 13/04/2022, 19PA01644, Unpublished in the recueil Lebon

CAA of PARIS - 2nd chamber

- N° 19PA01644

- Unpublished in the Recueil Lebon

Reading of Wednesday 13 April 2022

President

Mrs BROTONS

Rapporteur

Mr. Fabien PLATILLERO

Public Rapporteur

Ms JIMENEZ

Lawyer(s)

CMS BUREAU FRANCIS LEFEBVRE

Full text

FRENCH REPUBLIC

IN THE NAME OF THE FRENCH PEOPLE

Having regard to the following procedure:

 

Previous litigation :

 

ST Dupont asked the Paris Administrative Court, firstly, to order the discharge, in duties and increases, of the additional minimum business tax contribution to which it was liable for the financial year ending 31 March 2009, of the additional contributions on the value added of businesses charged to it for 2010 and 2011 and of the withholding tax to which it was liable for the financial years ending in 2009, 2010 and 2011, and, secondly, to reinstate its declared carry-over deficit.

 

By articles 1 to 3 of a judgment No. 1620873/1-3 and No. 1705086/1-3 of 20 March 2019, the Paris Administrative Court partially discharged ST Dupont, in terms of duties and surcharges, from the supplement to the minimum business tax contribution to which it was liable for the financial year ended 31 March 2009, from the supplements to the business value added contribution payable by it for 2010 and 2011 and from the withholding tax and corresponding surcharges to which it was liable for the financial years ended in 2009, 2010 and 2011, insofar as these duties and increases resulted from the adjustments made in respect of the licence fee invoiced by ST Dupont to ST Dupont Marketing, reinstated the loss carried forward to 31 March 2011, insofar as it had been reduced due to the same adjustments, and charged the State the sum of EUR 1,500 pursuant to Article L. 761-1 of the Code of Administrative Justice. By Article 4 of the same judgment, the Paris Administrative Court rejected the remainder of ST Dupont's claims.

 

 

Procedure before the Court :

 

By an application and memoranda registered on 17 May 2019, 21 November 2019 and 30 April 2020, the company ST Dupont, represented by Me Arnaud Le Boulanger and Me Benoît Bailly, asks the Court:

 

1°) to annul Article 4 of this judgment No. 1620873/1-3 and No. 1705086/1-3 of 20 March 2019 of the Administrative Court of Paris;

 

2°) declare the discharge of the taxes remaining in dispute and the reinstatement of its declared carry-over deficit in its entirety;

 

3°) to charge the State the sum of EUR 10,000 on the basis of Article L. 761-1 of the Administrative Justice Code.

 

 

ST Dupont maintains that :

- pursuant to Article L. 169 of the Book of Tax Procedures and Article 209 of the General Tax Code, the administration could not audit losses from time-barred financial years carried forward to the audited non time-barred loss-making financial years, which is confirmed by the official tax bulletins BOI-IS-DEF-10-20 No. 270 and No. 280 of 3 June 2013 and BOI-CF-PGR-10-20 No. 180 and No. 190 of 3 February 2016 ;

- the administration's position leads to a breach of equality with regard to Article L. 190 of the tax procedure book;

- the administration did not have sufficient information to implement the provisions of Article L. 13 B of the tax procedure book;

- since it responded to the requests for information and documents, the administration, which did not apply the fine provided for in II of Article 1735 of the General Tax Code, was not justified in assessing its tax bases on the basis of the elements available to it, relying on the third paragraph of Article 57 of the General Tax Code;

- the method of determining its transfer prices justifies their normality, which is confirmed by the doctrine referred to as BOI-CF-IOR-60-50 no. 410, no. 430 and no. 460 and BOI-BIC-BASE-80-20 no. 360 of 12 September 2012 and paragraph 3.9 of the OECD transfer pricing guidelines;

- the administration does not provide proof of the existence and amount of an indirect profit transfer by means of the comparable open market price method it used;

- the use of the comparable open market price method is not relevant, as confirmed by the instruction BOI-BIC-BASE-80-10 of 12 September 2012 and the applicable OECD transfer pricing principles;

- while its losses can be explained by a difficult economic context, the administration compares companies that have a different functional profile, does not take into account differences in geographical markets, compares transactions whose volumes are not comparable, vitiates its method by including transactions with "duty free" shops and does not take into account the services attached to the products sold.

 

By statements of defence registered on 2 October 2019, 6 April 2020 and 7 May 2020, the Minister for Public Action and Accounts concluded that the application should be rejected.

 

The Minister maintains that the pleas put forward by ST Dupont are unfounded.

 

 

By an order dated 8 October 2020, the investigation was closed on 29 October 2020.

 

 

Having regard to the other documents in the file.

 

Having regard to :

- the general tax code and the book of tax procedures;

- the code of administrative justice.

 

 

The parties were duly notified of the day of the hearing.

 

Were heard during the public hearing:

- the report of Mr. Platillero,

- the conclusions of Mrs Jimenez, public rapporteur ;

- and the observations of Mr Le Boulanger and Mr Bailly, lawyers for ST Dupont.

 

 

Considering the following:

 

 

1. ST Dupont, which operates as a master goldsmith, laqueur and trunk-maker and is majority-owned by the Dutch company D et D International, which is wholly-owned by Broad Gain Investments Ltd, based in Hong Kong, is the sole shareholder of distribution subsidiaries located abroad, in particular ST Dupont Marketing, based in Hong Kong. It was subject to an accounting audit, at the end of which it was notified of proposed adjustments dated 20 December 2012, interrupting the statute of limitations, and 26 August 2013. The administration then considered that the prices at which ST Dupont sold its products to ST Dupont Marketing and the amount of the manufacturing licence fees granted to this company were lower than the arm's length prices and thus increased the results and added value of ST Dupont to the amount of these revenue waivers. At the end of the procedure, the administration corrected the losses declared by ST Dupont in terms of corporation tax for the financial years ending in 2009, 2010 and 2011 and made it subject to withholding tax for each of these years, It also imposed an additional minimum business tax assessment for the financial year ending in 2009 and an additional business value added tax assessment for 2010 and 2011. ST Dupont is appealing against the judgment of 20 March 2019 by which the Paris Administrative Court, after discharging it, in duties and increases, from the taxes at issue resulting from the adjustments notified in respect of the licence fee invoiced by it to ST Dupont Marketing and reinstating the loss carried forward as at 31 March 2011, insofar as it had been reduced due to these same adjustments, rejected the remainder of its claims.

 

On the scope of the administration's right of control and rectification :

 

2. Under the terms of Article L. 169 of the Book of Tax Procedures: "For (...) corporation tax, the tax authorities' right of recovery is exercised until the end of the third year following the year in respect of which the tax is due (...)". Under the terms of Article 209 of the General Tax Code, in the version in force at the time, resulting from Article 89 of the Finance Act for 2004 No. 2003-1311 of 30 December 2003: "I. (...) In the event of a deficit incurred during a financial year, this deficit is considered as an expense for the following financial year and deducted from the profit made during the said financial year. If this profit is not sufficient for the deduction to be made in full, the excess of the deficit is carried forward under the same conditions to the following years (...)".

 

3. As ST Dupont acknowledges, the administration may exercise its right of control to rectify deficits declared in respect of non-barred financial years, in accordance with Article L. 169 of the Book of Tax Procedures, and on this occasion call into question deficits arising in the course of barred financial years if they have been charged by the company to the results of a non-barred financial year. Thus, under the very terms of Article 209 of the General Tax Code, when the deficit incurred by a company is carried forward to the results of one of the following financial years, the deduction is made as an expense for that financial year and, consequently, this deficit may be subject to a correction even if it was incurred during a prescribed financial year. However, contrary to what ST Dupont maintains, the carry-over of deficits resulting from previous statute-barred financial years to non statute-barred financial years, with no time limit pursuant to Article 209 of the General Tax Code, is not a simple declaration that has no impact, but constitutes one of the elements to be taken into account to determine the tax result of non statute-barred financial years, even when they show a tax deficit. Thus, these deficits from previous years have the effect of increasing the deficit of the non-barred years and necessarily influence the results used as a basis for taxation, even if the latter is zero, given the tax deficit situation. Consequently, ST Dupont is not entitled to argue that the administration could not verify the existence and the amount of the losses declared for the financial years ending on 31 March of the years 2003 to 2008, carried forward to the non-barred financial years in dispute, on the grounds that these losses were declared as remaining to be carried forward.

 

4. In this respect, if ST Dupont claims a breach of equality with regard to Article L. 190 of the Book of Tax Procedures, according to which the tax judge is responsible for "claims that tend to obtain compensation for errors made by the administration in determining a loss-making result", which "may be submitted as from the receipt of the reply to the taxpayer's observations", this plea must in any event be rejected, since the administration's right of rectification described above gives the taxpayer a corresponding right of claim.

 

5. Furthermore, ST Dupont is not entitled to invoke the official tax bulletins BOI-IS-DEF-10-20 no. 270 and no. 280 of 3 June 2013 and BOI-CF-PGR-10-20 no. 180 and no. 190 of 3 February 2016, which are in any event subsequent to the years in dispute.

 

 

On the implementation of Article L. 13 B of the Book of Tax Procedures :

 

6. Under the terms of Article L. 13 B of the Book of Tax Procedures, in its current wording: "When, in the course of an accounting audit, the administration has gathered elements leading to the presumption that a company (... ) has carried out an indirect transfer of profits, within the meaning of the provisions of Article 57 of the General Tax Code, it may request information and documents from this company specifying 1° The nature of the relations falling within the scope of Article 57 of the General Tax Code, between this company and one or more companies operating outside France or companies or groupings established outside France; 2° The method of determining the prices of the industrial, commercial or financial operations that it carries out with the companies or groupings referred to in 1° and the elements that justify it as well as, where applicable, the consideration granted; 3° The activities carried out by the undertakings, companies or groupings referred to in 1°, linked to the operations referred to in 2°; 4° The tax treatment reserved for the operations referred to in 2° and carried out by the undertakings it operates outside France or by the companies or groupings referred to in 1° in which it holds, directly or indirectly, the majority of the capital or the voting rights The requests referred to in the first paragraph must be precise and must explicitly indicate, by type of activity or by product, the country or territory concerned, the undertaking, company or grouping concerned and, where applicable, the amounts involved. They must also specify the time limit within which the enterprise being audited must respond. This period, which may not be less than two months, may be extended on reasoned request without exceeding a total of three months. When the company has not replied sufficiently, the administration sends it a formal notice to complete its reply within thirty days, specifying the additional information it wishes to receive. This formal notice must recall the penalties applicable in case of failure to reply".

 

7. The investigation revealed that the administration found that ST Dupont was making significant and persistent losses, with an operating loss of between EUR 7,260,086 and EUR 32,408,032 for the financial years from 2003 to 2009. It also noted that its marketing subsidiary in Hong Kong, ST Dupont Marketing, in which it held the entire capital, was making a profit, with results ranging from EUR 920,739 to EUR 3,828,051 for the same years. While ST Dupont argued that, according to the OECD principles applicable to transfer pricing for multinational companies and public administrations, the mere fact that losses were recorded could not lead to the presumption of the existence of an indirect transfer of profits within the meaning of Article 57 of the General Tax Code, the recurring losses recorded by the administration were an indication of this. In addition, during the adversarial debate on the occasion of the accounting audit, the auditor sent ST Dupont a letter dated 13 April 2012 in which he asked it, among other things, whether the group had a transfer pricing policy for determining internal sales prices and, if so, to explain this policy and any changes to it, or, failing that, to specify the method used to establish these prices, as well as the costs incurred, the risks and the functions it performed. ST Dupont did not respond to this request. Under these conditions, the administration had gathered sufficient elements to presume that ST Dupont had carried out an indirect transfer of profits within the meaning of Article 57 of the General Tax Code, allowing it to request the information and documents mentioned in Article L. 13 B of the Book of Tax Procedures, which it did by letter dated 20 July 2012.

 

8. In its reply of 19 September 2012, ST Dupont, after indicating the reasons that it believed justified its losses, explained, on the one hand, that it is the "main contractor" of the group, since it owns the most important intangible assets such as the brand for all classes of products and the entire world and the know-how of its factory located in Faverges, it bears the related expenses for research and development, brand management and corporate advertising, makes strategic decisions, performs product design, manufacturing, sales to French retailers, and is responsible for the management of the Group's activities, manufacturing, sales to French retailers and foreign wholesalers, whether independent or linked, and the provision of services to subsidiaries, and that it assumes the market, exchange rate and industrial risks, and that its subsidiaries in Europe are only wholesalers who have to bear the costs of local advertising but not stockholding costs, and that its subsidiaries in Asia are wholesalers and retailers who have to bear the costs of local advertising, stockholding, logistics and the management of shops under the brand's exclusive name.

 

9. ST Dupont then argued that its transfer prices for sales to its foreign subsidiaries and independent distributors worldwide were determined by applying the resale price method. It argued that public resale prices were the same for all European countries and that public prices were higher in Asian markets, citing only public prices in Hong Kong and Japan for lighters, and that the wholesale price before tax in Europe was equal to the public price less 38%. It also explained that transfer prices were determined by applying a discount to the European duty-free wholesale prices, which varied by subsidiary, with a discount rate of 43% for European subsidiaries for all products, but varying by subsidiary in Asia and by product, citing for example a 34% discount for lighters sold to the Hong Kong subsidiary and a 27% discount for those sold to the Japanese subsidiary, and a 36% discount for pens sold to the Hong Kong subsidiary. Noting that the transfer prices to the Asian subsidiaries were lower than the transfer prices to the European subsidiaries, ST Dupont relied on internal comparables to justify the discount rates, stating only that the transfer prices to independent distributors in Europe were identical to the transfer prices to the European subsidiaries, and that the transfer prices to independent distributors operating in other markets were comparable to those of the Asian subsidiaries.

 

10. ST Dupont also attached to its letter the distribution and licence agreements concluded with ST Dupont Marketing and simplified tables on the evolution of the main asset and liability items and margins by country. Finally, it attached a transfer pricing chart drawn up on 31 March 2011 between the parent company and its subsidiaries. ST Dupont, after stating that the retail price was established in a homogeneous manner for each continental zone, limited itself to presenting the average annual gross margins of its wholesale distributors in Europe and Asia, and then to setting out the gross margins realised in the context of transactions with independent distributors, wholesalers or retailers, located in the United States, Russia and the Middle East, in order to conclude, after asserting the existence of a similar functional profile, that the gross margins realised by the independent distribution companies were generally higher than those left to the affiliated distributors

 

11. As the Minister points out, ST Dupont did not provide any precise indication or concrete justification of its transfer pricing policy with regard to the methodology, documentation, information and analysis of the comparables used to justify the relevance of their choice, the public prices or the level of the distributor's margin with regard to the selling price of the finished products it manufactures. In particular, in addition to the fact that ST Dupont did not produce any evidence to quantify the reasons for its losses, it did not produce any figures for the costs relating to the functions performed by its subsidiaries, the gross and net margins of each subsidiary for each family of products, the discount rates for each product and each subsidiary located in Asia, and the similarity of the public prices for all the Asian countries, nor did it produce any precise documents concerning the comparables used, which are located in different continental areas.

 

12. In these circumstances, since, contrary to what ST Dupont maintains, its response to the request of 20 July 2012 was insufficient, the administration could regularly send it a formal notice to complete its response on the basis of Article L. 13 B of the Book of Tax Procedures, which it did on 23 October 2012.

 

On the existence and amount of the indirect transfer of profits :

 

13. Under the terms of Article 57 of the General Tax Code, applicable to corporation tax by virtue of Article 209 of that Code: "For the purposes of determining the income tax due by companies that are dependent on or that have control over companies located outside France, the profits indirectly transferred to the latter, either by way of an increase or decrease in the purchase or sale price, or by any other means, shall be incorporated into the results shown in the accounts. The same procedure is followed with respect to enterprises that are dependent on an enterprise or group that also controls enterprises located outside France. The condition of dependence or control is not required when the transfer is made with companies established in a foreign State or in a territory outside France whose tax regime is privileged within the meaning of the second paragraph of Article 238 A (...) In the event of failure to respond to the request made pursuant to Article L. 13 B of the Book of Tax Procedures (...) the tax bases concerned by the request are assessed by the administration on the basis of the information available to it and in accordance with the adversarial procedure defined in Articles L. 57 to L. 61 of the same Book. In the absence of precise information to make the adjustments provided for in the first, second and third paragraphs, the taxable income is determined by comparison with that of similar businesses normally operated.

 

14. It follows from these provisions that, when it finds that the prices charged by an enterprise established in France to a foreign enterprise which is related to it - or those charged to it by this foreign enterprise - are lower - or higher - than those charged by similar enterprises normally operated In the case of a foreign company, the administration must be considered as establishing the existence of an advantage which it is entitled to reintegrate into the results of the French company, unless the latter can justify that this advantage had at least equivalent counterparts for it.

 

With regard to the method for setting ST Dupont's transfer prices :

 

15. The investigation revealed that, after receiving an insufficient response to its request, the administration gave ST Dupont formal notice on 23 October 2012 to complete its response. In particular, it asked ST Dupont to quantify the various costs related to the functions performed by each of the subsidiaries and to provide not the turnover and average annual gross margin of the subsidiaries but, for each subsidiary, the gross and net margins, distinguishing according to the different product families. As regards the Asian subsidiaries, the administration asked ST Dupont to specify, on the one hand, the discount rate for each product and each subsidiary, specifying the reasons that would justify any difference in remuneration rates, and, on the other hand, whether the public prices were identical for all the subsidiaries in Asia, by presenting the documents mentioning these public prices. As regards the independent distributors presented as comparables, the administration, noting that the figures communicated for the distributors located in the United States, Russia and the Middle East only concerned the financial year ending in 2011 and only a few products, requested the production of the elements requested for all the products and financial years, specifying that these distributors could not constitute relevant comparables of the companies located in Asia due to the significant differences between the markets, in the absence of any analysis or correction on this point. As regards the independent distributor in South Korea, SJ Duko Co, the administration, noting the absence of data provided except for the indication of a discount rate of 28.5%, requested the production of figures relating to transactions with this distributor for all products and years audited.

 

16. It is not disputed that, although in its reply of 22 November 2012, ST Dupont produced tables of margins and sales by type of product and by country, it did not provide data relating to the public prices charged by each of its subsidiaries in Asia for each product and did not produce and analyse data relating to the proposed comparables located in geographical areas outside Asia. In these circumstances, ST Dupont provided an inadequate response after having been given formal notice to complete an initial inadequate response, constituting a failure to respond to the request made pursuant to Article L. 13 B of the Book of Tax Procedures. While the applicant company argues that it carried out an "a posteriori" verification, it is clear from the comparability study provided on 16 October 2014 that the applicant used data from the TP Catalyst Pro database to select twelve independent companies performing, in its view, comparable functions and distributing comparable products in Asia, to establish their gross margin rates for the years 2008 to 2010, which it compared to the gross margin rates achieved by ST Dupont Marketing, and concluded that the latter was in the arm's length range. However, the study thus provided is limited to referring to external comparables by comparing the gross margins of these companies with those of the subsidiary located in Hong Kong, without making it possible to make a precise comparison, in particular of the risks incurred with regard to the functions performed and the sufficient comparability of the products sold, and while ST Dupont did not, moreover, determine its transfer prices on the Asian market in relation to a comparison of gross margin rates. It thus follows from all these elements that the method set out by ST Dupont is limited, as far as the Asian continental zone is concerned, to applying a discount specific to each subsidiary and to each product, according to the company, depending on the risks assumed and the characteristics of the local markets, without these discounts being precisely set out by the sole reference to the overall gross margin rate of the transactions with its subsidiaries, and to comparing the overall margin rate of its subsidiary in Hong Kong with those achieved by third-party companies. As the resale price method relied on by ST Dupont was not sufficiently documented, the tax authorities were able to dismiss it as irrelevant for justifying transfer prices. As a result, given the inadequacy of the evidence provided, the tax authorities were justified in rejecting the transfer pricing method put forward by ST Dupont and in assessing the tax bases on the basis of the information available to them, pursuant to the third paragraph of Article 57 of the General Tax Code.

 

17. In this respect, the fact that the administration did not apply the fine provided for in II of Article 1735 of the General Tax Code, in the event of failure to respond to a formal notice provided for in Article L. 13 B of the Book of Tax Procedures, has no bearing.

 

18. Furthermore, ST Dupont is not entitled to rely on the administrative interpretation contained in BOI-CF-IOR-60-50 No. 410, No. 430 and No. 460 and BOI-BIC-BASE-80-20 No. 360 of 12 September 2012, which has no effect on the elements noted by the administration to reject the method set out by the company. In any event, the company is not entitled to rely on paragraph 3.9 of the OECD transfer pricing guidelines, which does not have the purpose or effect of validating in principle a method for comparing gross margins in the case of the marketing of a range of related products.

 

With regard to the method used by the administration :

 

19. The investigation revealed that, after ST Dupont had been informed of the results of computer processing, the administration, using the comparable price method on the free market, compared the prices at which ST Dupont sold the same products to ST Dupont Marketing in Hong Kong, the arm's length relationship between these two companies not being contested, and to independent companies located in South Korea, SJ Duko Co on the one hand, and a network of "duty free" shops on the other. After looking into the products sold jointly to these companies for each of the financial years covered by the computer processing, the administration found that the number of product references sold jointly to the dependent company and to the independent companies was close to half the number of product references sold to the dependent company and one third of the number of product references sold to the independent companies. The administration, after analysing the average selling price of the products common to the dependent company and the independent companies, determined by the amount of turnover resulting from the product, divided by the quantity of products sold during each financial year, then noted that the number of product references sold at a lower price to the dependent company ST Dupont Marketing than to the independent companies was between 2 and 13 times higher, depending on the financial year, than the number of product references sold at a higher price to the dependent company. It then calculated the amount of sales to ST Dupont Marketing of common products, differentiating according to whether the sales price level was lower or higher than that charged to independent companies, and found that the amount of sales to ST Dupont Marketing of products sold at a lower price to this dependent company than to independent companies was out of all proportion to the amount of sales to this company of products sold at a higher price than to independent companies. It concluded that ST Dupont Marketing was purchasing the products sold by ST Dupont at a lower cost.

 

20. The administration then assessed the turnover that would have been generated by the sale of the joint products to the dependent company ST Dupont Marketing at the price charged to the independent companies. It thus calculated the average sales price to South Korea of each joint product and applied this unit amount to the sales volume to ST Dupont Marketing. After offsetting the revenue gains from the higher-priced products against the revenue losses from the sale of the lower-priced products, it estimated the amount of revenue foregone by ST Dupont by selling its products to ST Dupont Marketing at a lower price. At the stage of the reply to the taxpayer's observations, the administration applied a reduction to the revenue thus determined to take into account the difference in the conditions of sale and the duties and risks assumed by ST Dupont Marketing and the duty free shops located in South Korea, in an amount equal to the margin achieved by ST Dupont on sales to duty free shops less the margin achieved on sales to SJ Duko Co. Subsequently, agreeing with the opinion issued on 24 June 2015 by the departmental commission on direct taxes and turnover taxes, which considered that account should be taken of services included in the price of products sold to SJ Duko Co but invoiced separately and in addition to the price of products sold to ST Dupont Marketing, the administration halved the amount of the increases.

 

21. Firstly, ST Dupont contests the relevance of using the comparable price method on the free market. However, and while, as stated above, the implementation of the resale price method used by the applicant was insufficiently precise to determine its transfer prices, no provision or principle required the administration to use that method, to the exclusion of the comparable open market price method, and to assess exclusively the compliance with the arm's length principle of the margin generated by ST Dupont Marketing by the resale price method, on the grounds that ST Dupont is the "main contractor" within the group receiving "the residual remuneration, i.e. the profit (or losses) remaining once all the entities have been fairly remunerated", as mentioned in the instruction referred to as BOI-BIC-BASE-80-10 of 12 September 2012 Moreover, contrary to what ST Dupont maintains, the OECD transfer pricing guidelines do not provide that the "tested" party could not be the main contractor or that only the resale price method should have been applied. In these circumstances, ST Dupont is not entitled to rely on a methodological error to argue that the administration, which carried out an assessment on the basis of the elements available to it, did not provide the proof that it was required to provide.

 

22. Secondly, ST Dupont argues that the administration is comparing companies with different functional profiles and does not show that this difference is irrelevant. It argues that ST Dupont Marketing was a wholesaler and retailer, whereas SJ Duko Co was essentially a wholesaler during the period under review. However, it is clear from the investigation that SJ Duko Co's wholesale activity was supplemented by its activity as an exclusive sales agent and retailer under a contract dated 30 November 2010 and, as the Minister points out, ST Dupont has not provided any evidence to show whether its resale prices were modulated according to the wholesale and retail functions performed, This is not apparent from the answers provided during the tax procedure, as stated above, while, moreover, the applicant did not quantify the various costs related to the functions performed by each of its subsidiaries despite the administration's request in its formal notice. In those circumstances, in the absence of any information making it possible to assess the nature and cost of the differences in functions between ST Dupont Marketing and SJ Duko Co, having regard in particular to the assets used and the risks borne, and consequently to assess the existence, if any of differences such that they would render the comparison irrelevant if they could not be appropriately corrected, ST Dupont, by merely relying in a general way on the differences it invokes, is not entitled to claim that the administration is not providing the proof that is incumbent on it.

 

23. Thirdly, ST Dupont maintains that the administration did not take account of the differences relating to the geographical markets on which it bases its comparability analysis. However, it does not provide any evidence to assess whether the differences between the markets would actually have an impact on its sales prices to subsidiaries and independent distributors, merely listing the geographical location, the size of the markets, the extent of competition and the nature and scope of the administrative regulations, whereas the only element produced in the file on this point, exclusive of any element concerning transfer prices with regard to geographical zones, is the transfer price charter provided to the administration, which merely specifies that retail prices were established in a homogenous manner by continental zones in order to prevent any transfer of products between territories. In the absence of any relevant element allowing to assume that there would be significant differences between the Hong Kong and South Korean markets, ST Dupont is not entitled to claim that the administration would not provide the proof it is due. In this respect, contrary to what ST Dupont maintains, by admitting that these markets were different for the assessment of the amount of licence fees, the administration did not in any way recognise that the same markets would be significantly different with regard to the setting of its transfer prices.

 

24. Fourthly, ST Dupont maintains that the administration is comparing transactions whose volumes are not comparable. Indeed, as it maintains, the respective sales volumes to ST Dupont Marketing and SJ Duko Co were significantly different. However, it does not follow from the tables attached to the proposed rectification of 26 August 2013, which detail the sales of products to these companies, that the respective sales prices were set according to the quantities sold. Furthermore, as previously mentioned, ST Dupont did not specify the discount rates applied to each of its subsidiaries in Asia and the public prices on the Asian markets, nor did it produce any document determining any discounts based on the quantities sold. Although ST Dupont produced documents analysing the correlation between volume sold and unit price, the mathematical and statistical analysis it carried out does not allow it to contradict the figures provided by the tax authorities in the rectification proposal and to make up for the absence of the above-mentioned documents, which would have allowed it to assess transfer prices with the Asian subsidiaries with sufficient precision, and thus to conclude that, in the circumstances of the dispute, the volumes would have implied a significant difference in the transfer prices. In these circumstances, given the information provided by the tax authorities and given that ST Dupont merely produces statistical calculations based on a "Student's test to measure the robustness of the linear regression analysis and its significance", which do not allow the conclusion that the characteristics of the goods transferred in terms of volume did not allow them to be compared, ST Dupont is not entitled to argue that the tax authorities have not provided the proof required of it on the grounds that it should have applied a correction based on the volumes sold.

 

25. 25. Fifthly, ST Dupont maintains that the inclusion of transactions with duty-free shops vitiates the comparative method, since the reduction applied to take account of differences in transactions with these companies has the effect of leaving only one point of comparison and artificially increasing the volume of sales. It also maintains that the other method of determining the comparability adjustment put forward by the administration before the court, based on a 27% commission, cannot be retained, in the absence of proof that it would reliably correct the comparability defects. However, if the administration applied a reduction to the selling prices to take account of the specific nature of the transactions carried out with the duty free shops, which were only retailers, equal to the amount of the margin made by ST Dupont on these sales, less the amount of the margin made by the same company on its sales to SJ Duko Co, This reduction, based on the fact that the duty free shops had functional differences that had an influence on the price level at which sales were invoiced, did not have the effect of eliminating this comparison term by artificially increasing the volumes sold to third parties and the number of reference transactions. Furthermore, in any event, the 27% reduction applied during the procedure to the unit prices for sales to duty free shops did not have the object and effect of substituting the prices for sales to duty free shops for the prices for sales to SJ Duko Co, but allowed the functional differences of these companies to be taken into account, since ST Dupont paid SJ Duko Co a commission of 27% on orders received from retailers and which were transmitted to it in the context of its role as sales agent under the contract of 30 November 2010. By merely producing a mathematical analysis, ST Dupont, which does not propose any alternative correction to take into account the functional differences described above, does not provide any relevant evidence to support its allegations that the reduction thus applied would not validly correct the functional differences between the duty free shops and SJ Duko Co. In these circumstances, ST Dupont is not entitled to claim that the administration is not providing the proof that it is required to provide on the grounds that it has retained, in the context of its method, the transactions with the duty-free shops.

 

26. 26. Sixthly, ST Dupont maintains that the administration did not take into account the services attached to the products sold, which are invoiced separately to ST Dupont Marketing but are included in the sales prices to SJ Duko Co. However, if it argues that, independently of the distribution contract concluded with SJ Duko Co, which already provides for certain services, it provided support services for the development of its distributor's network of customer shops, communication about the products supplied and commercial development, and that it is appropriate to refer to the actual conduct of the parties and not only to the distribution contract, it does not provide any evidence in support of its allegations to justify the existence, scope and cost of the alleged services, whereas the Minister also argues that the services provided for under the terms of the contract concluded on 31 March 2005 between ST Dupont and ST Dupont Marketing are not commensurate with those provided for in the distribution contract concluded on 1 April 2005 with SJ Duko Co. Furthermore, although no evidence was produced, the administration followed the opinion of the departmental commission for direct taxes and turnover taxes, which considered that an abatement of 50% should be applied to take account of the alleged services provided to SJ Duko Co. In these circumstances, ST Dupont is not entitled to claim that the administration has not provided the proof required of it on the grounds that it has not corrected a lack of comparability linked to the services provided.

 

27. Seventhly, ST Dupont maintains that the persistent losses it has recorded and the persistent profits made by its subsidiary, ST Dupont Marketing, can be explained by a difficult economic context. However, these general allegations do not call into question the elements identified by the administration as to the reality of the transfer prices applied between the two companies.

 

28. It follows from the above that the administration provides proof of the existence and amount of an advantage granted to ST Dupont Marketing that it was entitled to reintegrate into ST Dupont's results, pursuant to the provisions of Article 57 of the General Tax Code, before drawing the consequences on the amount of the deficits declared by this company in terms of corporation tax, on the liability of the sums thus distributed to the withholding tax and on the integration in the base of the minimum contribution of professional tax and the contribution on the added value of companies.

 

29. It follows from all the foregoing that ST Dupont is not entitled to maintain that it was wrongly that, by the contested judgment, the Paris Administrative Court rejected the remainder of its claim. Its claims for the annulment of Article 4 of that judgment, for the discharge of the taxes remaining in dispute and for the restoration of its declared carry-over deficit in its entirety must therefore be rejected.

 

 

On the costs related to the dispute :

 

30. The provisions of Article L. 761-1 of the Code of Administrative Justice prevent the State, which is not the losing party in the present proceedings, from paying the sum requested by ST Dupont for the costs it has incurred.

 

 

DECIDES:

 

 

Article 1: The application of the company ST Dupont is rejected.

Article 2: The present judgment shall be notified to the company ST Dupont and to the Minister of the Economy, Finance and Recovery.

A copy will be sent to the head of the tax department in charge of the Ile-de-France tax audit department.

Deliberated after the hearing of 30 March 2022, at which were seated :

- Ms Brotons, President of the Chamber,

- Mr Platillero, President of the Chamber,

- Ms Bonneau-Mathelot, First Councillor.

 

Issued to the public by the court registry on 13 April 2022.

 

The rapporteur,

F. PLATILLEROThe President,

I. BROTONS

The Registrar,

S. DALL'AVALThe Republic instructs and orders the Minister of the Economy, Finance and Recovery, insofar as he is concerned, or any bailiffs required to do so in respect of the ordinary law against private parties, to provide for the execution of this decision.

 

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N° 19PA01644