CAA de VERSAILLES, 3ème chambre, 28/03/2024, 22VE02242

CAA of VERSAILLES - 3rd Chamber

NO. 22VE02242

Not published in the Recueil Lebon

Reading of Thursday 28 March 2024

President

Ms BESSON-LEDEY

Rapporteur

Ms Claire LIOGIER

Public Reporter

MR ILLOUZ

Lawyer(s)

CABINET ARSENE TAXAND

FRENCH REPUBLIC

IN THE NAME OF THE FRENCH PEOPLE

Having regard to the following proceedings :

Previous litigation :

SA SAP France Holding asked the Administrative Court of Montreuil to restore its overall deficit in the amount of 171,373 euros in respect of 2012, to order the discharge of the additional corporation tax contributions to which it was subject in respect of 2013, in the amount of 314,395 euros in duties, 5,141 and €14,550 of the additional corporate income tax on distributed income payable in respect of 2012 and 2013, and to repay an overpayment of corporate income tax and additional contributions amounting to €27,461,913 in respect of 2012 to 2015.

In judgment no. 1804944 of 30 January 2020, the Montreuil Administrative Court rejected the claim.

Proceedings before the Cour avant cassation :

By application registered under no. 20VE01009 on 24 March 2020, SA SAP France Holding, represented by Mes Corbin et Recoules, avocats, asked the court:

1°) to set aside this judgment

2°) to re-establish its overall deficit for the financial year ended 2012 in the amount of 171,373 euros and to order the discharges and restitutions requested;

3°) order the State to pay the sum of 5,000 euros on the basis of Article L. 761-1 of the Code of Administrative Justice and order the State to pay all the costs.

It argued that :

- the interest rate provided for in the centralised cash management agreement that it had entered into with SAP SE was not abnormal; centralised cash management is authorised by Article L. 3°. The EONIA reference rate is an arm's length market rate recommended by the OECD for intra-group transactions, the trend of which is independent of the company, and which has been capped at 0% whereas the strict application of the calculation method would have resulted in a negative rate; the abnormal nature of the lender's remuneration must be assessed in the light of the risk of default by the borrower, and the investment of its cash with SAP AG is particularly secure;

- the cash management agreement includes a quid pro quo in that, in exchange for making its surplus cash available, it benefits from the possibility of obtaining immediate and unconditional financing from the central bank at a preferential rate based on the EONIA index;

- the average rate applied to sight deposits is not a relevant comparable;

- the court wrongly placed the burden of proof on it to prove that the income from its licence agreements for Business Object and Cartesis products was eligible for the reduced rate of corporation tax, since its request for the application of Article 39 terdecies of the General Tax Code, submitted during the course of the audit, did not constitute a claim but a request that an element of the calculation of the rectifications be taken into account;

- The court was wrong to dismiss the claim on the grounds that the licence agreements had not been produced, even though the complete file had been sent to the tax authorities.

In a statement of defence filed on 1 December 2020, the Minister for the Economy, Finance and Recovery argued that the application should be dismissed, claiming that the arguments raised were unfounded.

By decision no. 20VE01009 of 17 December 2021, the Versailles Administrative Court of Appeal relieved SA SAP France Holding of the additional corporation tax on distributed income to which it was liable in respect of 2012 and 2013 (Article 1), overturned the decision of 30 January 2020 of the Montreuil Administrative Court insofar as it was contrary to that decision (Article 2) and, lastly, dismissed the remainder of the application (Article 3).

By decision no. 461639 of 20 September 2022, the Conseil d'Etat, ruling in the contentious procedure, annulled article 3 of this judgment and, to the extent of the cassation thus pronounced, referred the case back to the court where it was registered under no. 22VE002242.

Proceedings before the Court after cassation :

By memoranda registered on 4 November 2022 and 26 January 2023, SA SAP France Holding, represented by Mr Corbin and Mr Recoules, avocats, asks the court, in the last of its written submissions:

1°) to annul judgment no. 1804944 of 30 January 2020 of the Montreuil Administrative Court;

2°) to reinstate its overall deficit for the financial year ending in 2012 in the amount of 171,373 euros and to order discharge of the additional corporation tax assessment to which it was liable in respect of the financial year ending in 2013 in the amount of 314,395 euros, together with default interest;

3°) order the State to pay the sum of 5,000 euros on the basis of Article L. 761-1 of the Code of Administrative Justice and order the State to pay all the costs.

It raised the same pleas as in its application registered under no. 20VE01009 and added that :

- the cash entrusted to SAP SE was not granted interest-free, the absence of interest resulting solely from the calculation formula set out in the agreement and the fall in interest rates on the markets; the absence of interest does not constitute a benefit in its own right; the administration therefore bears the burden of proving the existence of a gift ;

- the cash management agreement includes a quid pro quo in that, in exchange for making its surplus cash available, it benefits from the option to obtain immediate and unconditional financing from the central bank at a preferential rate based on the EONIA index; the fact that it did not actually use this option during the period is irrelevant;

- it also had an interest in continuing its participation in the central treasury, given this consideration, despite the absence of interest; the rates that it could have obtained from other institutions did not justify losing the advantages that it derived from SAP SE's central treasury;

- the average rate applied to sight deposits does not constitute a relevant comparable since the average rate applied to sight deposits concerns investments where the funds are not immediately available;

- in any event, the average rate used by the department must be reduced by the margin of the centralising entity, amounting to 0.15%, a margin that has never been called into question by the department.

In a statement of defence registered on 26 December 2022, the Minister for the Economy, Finance and Industrial and Digital Sovereignty argued that the application should be rejected.

It argues that the pleas raised are unfounded.

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 date of the hearing.

The following were heard during the public hearing:

- Ms Liogier's report,

- and the conclusions of Mr Illouz, public rapporteur.

Whereas

1. Société anonyme (SA) SAP France, a 98% subsidiary of SA SAP France Holding, itself 100% owned by the German company SAP AG, now SAP SE, is engaged in the marketing of software developed by the group for professional use. The company's accounts for the 2012 and 2013 financial years were audited, and the tax authorities noted that, from August 2012, it had not received any interest for making its cash available to SAP SE, and considered that this situation constituted an abnormal management practice. The tax authorities therefore reintegrated, as unduly transferred to SAP AG, the remuneration that it could have obtained by placing this money with financial institutions. In a ruling handed down on 30 January 2020, the Montreuil Administrative Court rejected the claim by SAP France Holding, the head of the integrated tax group to which SAP France belongs, for the reconstitution of its overall tax loss carry-forward in the amount of 171,373 euros in respect of the 2012 financial year, the discharge of the additional corporate income tax contributions payable by the company in the amount of 314,395 euros in respect of the 2013 financial year and the additional contribution on distributed income in the amount of 5,141 euros in 2012 and 14,550 euros in 2013, and, in application of the reduced tax rate from which it also considered itself to benefit, the repayment of an overpayment of corporate income tax and additional contributions in the amount of 27,461,913 euros in respect of these two financial years.

In a ruling no. 20VE01009 dated 17 December 2021, the Versailles Administrative Court of Appeal relieved SAP France Holding of the additional corporation tax on distributed income to which it was liable in respect of 2012 and 2013, overturned the ruling of 30 January 2020 of the Montreuil Administrative Court insofar as it was contrary thereto and, lastly, dismissed the remainder of the application. In a decision dated 20 September 2022, the Conseil d'Etat, ruling on the dispute, set aside the judgment insofar as it dismissed the remainder of the application and referred the case back to the court to that extent.

On the transfer of profits :

2. Under the terms of Article 57 of the French General Tax Code, which is applicable to corporation tax by virtue of Article 209 of the same Code: "For the purposes of determining the income tax due by companies that are dependent on or that control companies located outside France, 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. The same procedure shall be followed in respect of companies that are dependent on a company or group that also controls companies located outside France (...)

In the absence of precise information for making the adjustments provided for in the first, second and third paragraphs, the taxable income shall be determined by comparison with that of similar companies normally operated (...)". It follows from these provisions that, when the tax authority finds that the prices charged by a company established in France to a foreign company which is linked to it - or those charged to it by this foreign company - are lower - or higher - than those charged by similar companies operating normally. In such cases, the administration must be deemed to have established 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. In the absence of such a comparison, the department is not, however, entitled to invoke the presumption of transfers of profits thus established but must, in order to demonstrate that a company has granted a liberality by invoicing services at an insufficient price - or by paying them at an excessive price -, establish the existence of an unjustified difference between the agreed price and the market value of the asset transferred or the service rendered.

3. First of all, it is common ground that, on the one hand, SA SAP France is a subsidiary 98% owned by SA SAP France Holding, itself 100% owned by the German company SAP AG, now SAP SE, with which SA SAP France has placed its cash surpluses, the lack of remuneration for which is the subject of the present dispute. It follows that SA SAP France carries out transactions with a company that is related to it within the meaning of the aforementioned provisions of Article 57.

4. The investigation has shown that SA SAP France has made its surplus cash available to the German company SAP SE, which indirectly holds it as described above, in very large amounts ranging from €132 million to €432 million, under a cash management agreement entered into on 17 December 2009. Under the terms of the agreement, these sums were remunerated on the basis of an interest rate equal to the Euro OverNight Index Average (EONIA) interbank reference rate less 0.15 points.

The French tax authorities do not dispute the normal nature of the agreement when it was entered into in 2009, or the rate that was thus defined between the parties. During 2012 and 2013, despite the application of this formula, which resulted in negative remuneration due to changes in the EONIA, the parties agreed to set the rate at 0%. As a result, there was no remuneration at all on the sums made available to the cash centre by SAP France from August 2012.

The tax authorities compared this lack of remuneration to the remuneration that SA SAP France could have received by investing its money in financial institutions, based on the average rate of remuneration on sight deposits over the period. It then considered that the difference between the two sums constituted a transfer of profits within the meaning of the aforementioned provisions. Contrary to what the company maintains, such an absence of remuneration makes it possible to establish a presumption of transfer of profits for the transactions in question.

5. The company argues that the investment of the funds with SAP SE is particularly secure and that it enables its subsidiary to obtain immediate and unconditional financing from the central treasury.

However, it does not deny, as the French tax authorities point out, that its subsidiary's software marketing business generates structural cash surpluses and that the subsidiary has never had recourse to financing from the central treasury since its inception. Nor does it report any difficulty in investing surplus cash in secure financial products.

In addition, it appears from the investigation that the cash flow agreement does not provide for a defined term and stipulates, in paragraph 2 of section IX, that, subject to compliance with a one-month time limit, the parties may terminate the agreement, without condition or penalty. Section XII of the same agreement also states that it has no effect on the independence of each of its co-contractors or on their autonomy of management and administration. SA SAP France therefore had no contractual obligation to remain in the central cash pool beyond a period of one month.

Furthermore, the company does not dispute that the rate of interest on advances, which results from the terms of the agreement, is not fixed, even if the aforementioned 2009 agreement does not contain a review clause, and that the parties may agree on a different rate, as they did in 2012.

In addition, by simply arguing that the comparable rate used by the authorities is not relevant, when sight deposits, contrary to what it claims, do not exclude any immediate withdrawal of funds, the company, which does not offer any other comparable rate, does not seriously criticise the rates used by the authorities, between 0.15% and 0.18% over the period, which correspond to the remuneration that SA SAP France could have obtained from a financial institution and which, contrary to what it claims, are not negligible, given the amounts of cash surpluses made available.

Lastly, although the company argues that the rates used by the authorities could, in any event, only be reduced by 0.15%, which corresponds to the margin of the central treasury that was applied in the 2009 agreement, this discount cannot be accepted since the comparables used by the authorities necessarily include the margin of the financial institutions. The fact that this rate has never been questioned by the authorities since the agreement was signed in 2009 has no bearing on the present analysis, which relates to different years in dispute.

In these circumstances, and while SA SAP France persisted in investing its cash, without remuneration, with an affiliated company, the applicant company did not establish that the advantages it granted to the German company SAP SE were justified by the obtaining of quid pro quos favourable to its business or, at the very least, by quid pro quos at least equivalent to the revenue forgone granted. It follows that the tax authorities were right to reinstate in the results of SA SAP France the advantage granted to SAP SE established outside France.

On the reduced rate of corporation tax :

6. Under the terms of Article 39 terdecies of the French General Tax Code: "1. The long-term capital gains regime is applicable to capital gains on the sale of patents, patentable inventions or improvements thereto, as well as to net income from the granting of licences to exploit the same items". It follows from these provisions that the benefit of the preferential treatment they provide is subject to the condition that the rights, processes and techniques referred to constitute fixed assets that the licensor agrees to make available to the licensee and that, as a result, the license puts the licensee in a position to use the licensed patent, processes or techniques on its own behalf.

7. In support of its request that the reduced rate of tax be applied, pursuant to the provisions of Article 39 terdecies of the French General Tax Code, to various licence fee revenues, the applicant company produced two "supporting files" relating to the SAP Business Object Platform (SBOP) and Cartesis activities. However, it does not appear from the investigation, in the absence of any contract submitted for discussion, that the income identified by the applicant company is remuneration for the assignment or licensing to a customer of patents or patentable inventions, so that its claim can only be rejected.

8. It follows from the foregoing that SA SAP France Holding has no grounds for claiming that, by the judgment under appeal, the Montreuil Administrative Court was wrong to reject its request to restore its overall deficit for the financial year ending in 2012 in the amount of 171,373 euros and to order the discharge of the additional corporation tax assessment to which it was liable in respect of the financial year ending in 2013 in the amount of 314,395 euros. Consequently, the claims for payment of default interest and those submitted on the basis of Article L.761-1 of the Code of Administrative Justice can only be rejected. Similarly, in the absence of costs in the present proceedings, the claims seeking an order that the State pay all the costs must be rejected.

HAS DECIDED AS FOLLOWS

Article 1: The remainder of the claims in the application by SA SAP FRANCE HOLDING seeking the restoration of its overall deficit for the financial year ended in 2012 in the amount of 171,373 euros, the discharge of the additional corporation tax assessment to which it was liable in respect of the financial year ended in 2013 in the amount of 314,395 euros, the payment of default interest, the payment to the State of a sum on the basis of Article L. 761-1 of the Code of Administrative Justice and that it be ordered to pay the costs.

Article 2: SA SAP FRANCE HOLDING and the Minister for the Economy, Finance and Industrial and Digital Sovereignty will be notified of this judgment.

Deliberated after the hearing of 12 March 2024, in which were seated :

Ms Besson-Ledey, President of the Chamber,

Mr Pilven, Associate President,

Ms Liogier, First Councillor.

Issued to the public at the Court Registry on 28 March 2024.

The rapporteur,

C. LiogierThe President,

L. Besson-Ledey

The Registrar,

T. TollimThe Republic instructs and orders the Minister for the Economy, Finance and Industrial and Digital Sovereignty, insofar as he is concerned, or any court commissioners required to act in respect of ordinary law proceedings against private parties, to ensure the execution of this decision.

For a true copy

The Registrar,

N°22VE02242 2