Council of State, Plenary session, 27 July
1988, 50020, published in the Recueil Lebon
Council of State - PLENARY
ruling
au contentieux
- N° 50020
- Published in the Recueil
Lebon
Reading of Wednesday 27 July 1988
President
Mr Ducamin
Rapporteur
Mr Turquet de Beauregard
Public Rapporteur
Mr Fouquet
Full text
FRENCH REPUBLIC
IN THE NAME OF THE FRENCH PEOPLE
Having regard to the application, registered on
16 April 1983 at the Secretariat of the Contentious Division of the Council of
State, submitted by the company 'BOUTIQUE 2M', a limited liability company with
its registered office at ..., represented by its manager in office, and
requesting that the Council of State ..:
°1 annul the judgment of 17 March 1983 by which
the administrative court of Lyon rejected her request for the discharge of the
corporate tax contributions to which she was subject for the years 1974, 1975
and 1977,
2. grants her the discharge of the contested
taxes,
Having regard to the other documents in the
file;
Having regard to the general tax code;
Having regard to the code of administrative
courts;
Having regard to the order of 31 July 1945 and
the decree of 30 September 1953;
Having regard to the law of 30 December 1977;
After having heard :
- the report of Mr. Turquet
de Beauregard, Maître des requêtes,
- the conclusions of Mr. Fouquet, Government
Commissioner;
Considering that the contested tax increases,
established in respect of corporation tax for the years 1974, 1975 and 1977,
result from the fact that the administration considered, on the one hand, that
the company "BOUTIQUE 2M", which runs a women's clothing sales
business, wrongly included in general expenses travel expenses corresponding to
trips to Sweden by one of the company's partners and thus performed an abnormal
act of management, on the other hand, that the payment, during the years 1974,
1975, 1976 and 1977, of commissions of 6%, then 7%, made by the company
"BOUTIQUE 2M" to the Swedish company "Hennes-Mauritz Ab",
its sole supplier, concealed a transfer of profits abroad and reinstated the
amount in the results, on the basis of the provisions of article 57 of the
general tax code;
Considering that under the terms of Article 57
of the General Tax Code, applicable to corporation tax by virtue of Article 209
of the Code: "For the establishment of the income tax due by companies
that 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 ... " ; that these provisions, subject to
the administration having established the existence of a link of dependence
between the company located in France and the company located outside France as
well as price increases or decreases, or similar means of transferring profits,
institute a presumption weighing on the company liable for corporation tax,
which can only obtain, through litigation, the discharge or reduction of the
tax assessed as a result by providing proof of the facts which it relies on to
show that there has been no transfer of profits;
Considering that, if the assessment of the
abnormal character 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
relies to invoke this abnormal character; that this principle can, however,
only be applied in compliance with the legislative and regulatory prescriptions
which, in tax litigation, govern the burden of proof;
Considering that the determination of the
burden of proof stems, primarily, in the case of companies subject to
corporation tax, from the nature of the accounting operations to which the
management acts whose character is contested by the administration have given
rise ; that, if the act contested by the administration was translated, in
accounting, by an entry bearing, as it is the case in the present case, with
regard to travel expenses, on expenses of the nature of those which are
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
provide the proof which is incumbent on it if the taxpayer is not, the taxpayer
is not himself able to justify, in its principle as in its amount, the accuracy
of the entry in question, even if, because of the procedure implemented, he
would not have been, in this respect, obliged to provide such a justification;
Considering that, when there is a disagreement
between the taxpayer and the administration on questions of fact, whether it
concerns the materiality of the facts themselves or the assessment that should
be made of the facts, having regard, in particular, to the real situation of
the company or to the practices of the trade or industry to which it belongs,
this disagreement may, by virtue of the provisions of Article 1649 quinquies A of the General Tax Code, taken up again in
Article L.59 of the book of tax procedures, be submitted to the assessment of
the departmental commission of direct taxes and taxes on turnover at the
initiative of the taxpayer or at that of the administration; that, when the
latter has followed the opinion of the commission, duly expressed, it is up to
the taxpayer, in any case, to demonstrate, before the judge of the tax, the
factual elements of which he avails himself;
Considering that it results from the
instruction that, on the two heads of rectification mentioned above, the
disagreement was brought before the departmental commission of direct taxes and
taxes on the turnover; that, contrary to what the applicant maintains, it is
clear from the terms of the opinion issued by the said commission on 7 May 1979
that it took sides, in a sufficiently reasoned, albeit succinct, manner, on the
facts which were submitted to its assessment; that the disputed taxes having
been established in accordance with the position taken by the commission in its
opinion, the latter is enforceable against the company "BOUTIQUE 2M";
Considering that the latter does not contest,
with regard to travel expenses, that these expenses correspond to travel
expenses made in Sweden for private purposes by one of its associates, of
Swedish nationality, employed as a saleswoman; that, if it maintains that these
trips were useful to the company by allowing necessary contacts with the
supplier, it does not provide proof of these contacts; that it follows that the
assumption of these expenses constituted an abnormal act of management authorising the administration to exclude the amount for
the calculation of the taxable profit ;
Considering that, with regard to the
"commissions" paid by the company "BOUTIQUE 2M" to the
Swedish company "Hennes-Mauritz AB", the administration establishes
the existence of the link of dependence of the former with regard to the
latter, of which it avails itself, as well as the materiality and the amount of
the payments; that, however, the company "BOUTIQUE 2M" justifies, for
its part, that the Swedish firm gave it effective support to develop sales in
France while invoicing it for the goods on the basis of its own purchase prices
plus only transport costs; that, in view of the particularly advantageous
conditions that it had thus been granted in the interest of its own business,
'BOUTIQUE 2M' provides proof that, contrary to what the departmental tax
commission considered, the payments made to 'Hennes-Mauritz AB' actually
involved commercial considerations of at least equivalent value for it, which
prevented them from being reintegrated by application of the above-mentioned
provisions of Article 57 ; that, consequently, the applicant company is
entitled to maintain that it is wrongly that, by the contested judgment, the
administrative court rejected its request insofar as it relates to the
reintegration of the said commissions, i.e. 15,124 F, 22,306 F, 22,367 F,
15,343 F respectively in 1974, 1975, 1976 and 1977;
Article 1: The results of the company
"BOUTIQUE 2M", for the purposes of corporate tax liability for the
years 1974, 1975 and 1977, shall be calculated without taking into account the
reintegration of the sums of FRF 15,124, FRF 22,306, FRF 22,367 and FRF 15,343,
which had been made on the declarations filed for the years 1974, 1975, 1976
and 1977 respectively.
Article 2: The company "BOUTIQUE 2M"
is discharged from the difference between the amount of the supplementary
corporation tax to which it was subject for the years 1974, 1975 and 1977 and
the amount of those resulting from the bases mentioned in article 1 above.
Article 3: The judgement of the Lyon
Administrative Court dated 17 March 1983 is reversed insofar as it is contrary
to the present decision.
Article 4: The remainder of the conclusions of
the request of the company "BOUTIQUE 2M" is rejected.
Article 5: The present decision will be
notified to the company "BOUTIQUE 2M" and to the Minister of State,
Minister of the Economy, Finance and Budget.
Analysis
- Abstrata
19-04-02-01-04-082 TAXES - INCOME AND PROFIT
TAXES - TAXABLE INCOME AND PROFIT - SPECIAL RULES - INDUSTRIAL AND COMMERCIAL
PROFITS - DETERMINATION OF NET PROFIT - ANORMAL MANAGEMENT ACTIVITIES - Burden
of proof - Proof incumbent on the taxpayer in the case of a reassessment based
on Article 57 of the C. The burden of proof lies with the taxpayer in the case
of an adjustment based on article 57 of the C.G.I. and established in
accordance with the opinion of the departmental commission.
19-04-02-01-06-01-04 CONTRIBUTIONS AND TAXES -
INCOME AND PROFIT TAXES - TAXABLE INCOME AND PROFIT - SPECIAL RULES -
INDUSTRIAL AND COMMERCIAL PROFITS - ESTABLISHMENT OF TAX - ACTUAL PROFIT -
QUESTIONS CONCERNING PROOF (1) Burden of proof incumbent on the taxpayer -
Taxes established on the basis of article 57 of the C. G. I. in accordance with
the opinion of the departmental commission. (1) Burden of proof on the taxpayer
- Taxes established on the basis of Article 57 of the C.G.I. in accordance with
the opinion of the departmental commission. (2) Burden of proof incumbent on
the administration - Absence - Taxes established on the basis of article 57 of
the C.G.I. in accordance with the opinion of the departmental commission.
- Summary
19-04-02-01-04-082, 19-04-02-01-06-01-04(1),
19-04-02-01-06-01-04(2) 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 provide the proof which is incumbent on it if
the taxpayer is not, himself, able to justify, in principle as well as in
amount, the accuracy of the entry in question, even if, because of the
procedure implemented, he would not have been required to provide such a
justification in this respect. When there is a disagreement between the
taxpayer and the administration on questions of fact, whether it concerns the
materiality of the facts themselves or the assessment that should be made of
the facts, particularly with regard to the real situation of the company or the
trade or industry practices to which it belongs, this disagreement may, by
virtue of the provisions of Article 1649 quinquies A
of the CGI included in Article L.59 of the tax procedure book, be submitted to
the assessment of the departmental commission of direct taxes and turnover
taxes at the taxpayer's initiative or that of the administration. When the
latter has followed the duly expressed opinion of the commission, it is, in any
case, up to the taxpayer to demonstrate, before the tax judge, the factual
elements he is relying on. As the taxes were established in accordance with the
opinion of the departmental commission, it is up to the company to prove the
contrary, with regard to the adjustments made by the administration on the
basis of Article 57 of the CGI.