France vs
Tropicana S.A. August 2022, CAA
CAA of
DOUAI, 4th chamber, 25/08/2022, 20DA01106, Unpublished in the recueil Lebon
CAA of
DOUAI - 4th chamber
- N°
20DA01106
-
Unpublished in the Recueil Lebon
Reading of
Thursday 25 August 2022
President
Mr Heu
Rapporteur
Mr.
Mathieu Sauveplane
Public
Reporter
Mr Arruebo-Mannier
Lawyer(s)
PWC
SOCIÉTÉ D'AVOCATS
FRENCH
REPUBLIC
ON BEHALF
OF THE FRENCH PEOPLE
Having regard to the following procedure:
Previous litigation :
The public limited company (SA) Tropicana Europe asked
the administrative court of Amiens to discharge, in duties and penalties, the
additional corporate tax, withholding tax and contribution on the added value
of companies (CVAE) to which it was subject in respect of the years 2010 to
2013 as well as the additional contribution to corporate tax to which it was
subject in respect of the years 2012 and 2013.
In a judgment No. 1701945, 1701946 of 7 July 2020, the
Amiens administrative court pronounced the discharge of the taxes in dispute
and charged the State a sum of 2,000 euros on the basis of Article L. 761-1 of
the administrative justice code.
Procedure before the court :
By an application and a memorandum, registered on 29
July 2020 and 19 January 2022, the Minister for Public Action and Accounts
asked the court:
1°) to annul this judgment;
2°) to annul the sentence against the State pronounced
by the Amiens Administrative Court on the basis of Article L. 761-1 of the Code
of Administrative Justice and to order the reimbursement by the Tropicana
Europe company of the sum of 2,000 euros paid to it in this regard;
3°) rule on the merits and reject the application of
the company Tropicana Europe;
4°) in the alternative, to allow the requested
substitution of legal basis.
He maintains that :
- the judgment is irregular in that the administrative
court ruled ex officio on a plea not raised by the applicant company;
- the administrative court misapplied the provisions
of Article 57 of the General Tax Code; since the administration established the
existence of a dependency link between Tropicana Europe and PepsiCo, the
provisions of Article 57 of the General Tax Code are applicable without it
being necessary to show that FLTCE is located in a territory with a privileged
tax regime within the meaning of the second paragraph of Article 238 A of the
General Tax Code;
- in the context of the devolutive
effect of the appeal, the administration refers to its writings at first
instance with regard to the other pleas put forward by Tropicana Europe;
- in the event that Article 57 of the General Tax Code
is considered inapplicable in this case, the administration requests a substitution
of legal basis to confirm the validity of the taxes in dispute on the basis of
Articles 38 and 209 of the General Tax Code; in the case in point, Tropicana
Europe waived the collection of revenue, which characterises
an abnormal act of management.
By a statement of defence,
registered on 19 January 2021, and a statement of case, registered on 3
February 2022, SA Tropicana Europe, represented by Mr
Combe and Mr Veras, requested that the application be rejected and that
the sum of 8,000 euros be charged to the State on the basis of Article L. 761-1
of the Administrative Justice Code.
It argued that :
- the administrative court validly concluded that the
mere dependence that would result from belonging to the same group is not
sufficient to demonstrate a dependence that would have led one of the companies
to deviate from the arm’s length principle; in the absence of evidence from the
tax authorities of behaviour that would deviate from
the arm’s length principle, the court could only find that the tax authorities
had not provided the evidence that is incumbent on them pursuant to Article 57
of the General Tax Code;
- the company nevertheless provided throughout the
procedure, even though the burden of proof was not on it, all the elements proving
its interest in having accepted the evolution of the legal and economic terms
of its contractual relations, through the conclusion of a three-year contract
guaranteeing a minimum volume of activity of 60% in an uncertain economic
environment, without incurring reorganisation costs;
- as regards the abnormal management act invoked by
the administration in the context of a request for substitution of legal basis,
the minister establishes neither the impoverishment of the company nor the
intentional element;
- the company reiterated, insofar as necessary, the
arguments put forward at first instance.
By an order of 27 January 2022, the investigation was
closed on 28 February 2022.
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 Sauveplane, president
assessor,
- the observations of Mr Duino, representing the
company Tropicana Europe,
- the conclusions of Mr Arruebo-Mannier, public
rapporteur.
Considering the following:
1. The limited company (SA) Tropicana Europe, governed
by Belgian law, operates an establishment located in Hermes, in the department
of Oise, where it carries on the business of bottling fruit juice-based drinks.
On 1 July 2009, it concluded a new distribution contract with the Swiss company
FLTCE, based in the canton of Bern, which was accompanied by a restructuring of
its business. Tropicana Europe was subject to two accounting audits, at the end
of which the tax authorities notified it of tax reassessments in respect of
corporate income tax, withholding tax and business value added contribution
(CVAE) for the years 2010 to 2013, together with penalties. It also notified
the company of tax adjustments, together with penalties, in respect of the
additional contribution to corporation tax for the years 2012 and 2013. The
Minister of Action and Public Accounts is appealing against the judgment of 7
July 2020 by which the Amiens Administrative Court discharged Tropicana Europe
from the additional taxes thus imposed on it.
On the regularity of the judgment :
2. Before the first judges, Tropicana Europe had
raised two pleas, one alleging that the changes in its business conditions in
July 2009 complied with the provisions of Article 57 of the General Tax Code
and the other alleging that the administration had misinterpreted Article 238 A
of the General Tax Code by wrongly concluding that FLTCE was subject to a
privileged tax regime.
3. In granting the requested discharge, the first
judges considered, in response to the arguments raised by Tropicana Europe,
that the administration, which had the burden of proof, had not established any
dependency link between Tropicana Europe and FLTCE within the meaning of
Article 57 of the General Tax Code and had not established that FLTCE was
subject to a preferential tax regime pursuant to the provisions of Article 238
A of the General Tax Code. In so doing, the first judges confined themselves to
responding to the arguments raised by Tropicana Europe. In particular, and
contrary to what the administration maintains, Tropicana Europe did dispute the
existence of a link of dependence and control with FLTCE, noting in this
regard, on page 11 of its memorandum registered at the administrative court
registry on 19 April 2018, that "while it does not bear the burden of
proof, Tropicana provided a number of independent comparables
confirming the arm's length nature of its contractual relations with
FLTCE". By invoking the existence of an arm's length contractual
relationship with FLTCE, Tropicana Europe disputed the existence of a
relationship of dependence and control with FLTCE. Consequently, the first
judges did not accept a plea raised ex officio. Consequently, the plea alleging
irregularity in the contested judgment must be rejected.
On the validity of the taxes :
4. Under the terms of Article 57 of the General Tax
Code, in the version applicable to the dispute: "For the purposes of
determining the income tax due by companies which are dependent on or which
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, are incorporated into the
results shown in the accounts. The same procedure is followed with regard to
companies that are dependent on a company or a group that also controls
companies located outside France. / The condition of dependence or control is
not required when the transfer is made to companies established in a foreign
State or in a territory located outside France whose tax regime is privileged
within the meaning of the second paragraph of Article 238 A. / (...)".
Under the terms of the second paragraph of Article 238 A of the same code:
"For the application of the first paragraph, persons are considered to
be subject to a privileged tax regime in the State or territory in question if
they are not taxable there or if they are subject to taxes on profits or income
the amount of which is less than half of that of the tax on profits or income
for which they would have been liable under the conditions of common law in
France, if they had been domiciled or established there. ".
5. These provisions establish, as soon as the tax
authorities establish the existence of a link of dependence and a practice
falling within their scope, a presumption of indirect transfer of profits which
can only be usefully challenged by the company liable to tax in France if it
provides proof that the advantages it granted were justified by the obtaining
of consideration.
As regards the existence of a privileged tax regime :
6. Before the first judges, Tropicana Europe disputed
that FLTCE was established in a country with a privileged tax regime within the
meaning of the second paragraph of Article 238 A of the General Tax Code. The
first judges considered that by simply relying on the overall corporate tax
rate of 13% in the canton of Bern, in the Swiss Confederation, where FLTCE's
head office is located, and the significant difference between this rate and
the corporate tax rate of 33.33% in France, the tax authorities did not
establish that FLTCE was established in a country with a privileged tax regime,
the tax authorities did not establish that the amount of income tax to which
FLTCE is subject is less than half the amount of income tax for which it would
have been liable under the conditions of ordinary law in France, if it had been
domiciled or established there, and, consequently, that FLTCE would be subject
to a preferential tax regime pursuant to the aforementioned provisions of
Article 238 A of the French General Tax Code. As this ground of the judgment is
not contested on appeal by the Minister, the latter must be considered as
renouncing to rely on the establishment of FLTCE in a country whose tax regime
is privileged pursuant to the provisions of Article 238 A of the General Tax
Code. Consequently, the Minister bears the burden of proof of the existence of
a link of dependence between Tropicana Europe and FLTCE.
As regards the existence of a link of dependence :
7. In order to discharge Tropicana Europe from the
taxes it was contesting, the first judges noted that, in order to establish a
relationship of dependence between this company and FLTCE, the tax authorities
based themselves on the fact that these two companies belonged to the same
multinational group, PepsiCo, and deduced that, by relying solely on this
factor, the authorities, who bear the burden of proof, did not establish any
relationship of dependence between the two companies within the meaning of
Article 57 of the General Tax Code.
8. In order to prove the existence of a relationship
of dependence between Tropicana Europe and FLTCE, the Minister noted that SA
Tropicana Europe Hermes is a permanent establishment of SA Tropicana Europe,
located in Belgium, which is 99.99% owned by Seven'Up
Nederland BV, which in turn is wholly owned by Pepsico
Inc. FLTCE, located in Switzerland in the canton of Bern, is wholly owned by
Frito Lay Compagny Gmbh,
also located in Switzerland in the same canton. This company has been
controlled since 14 December 2011 by PepsiCo Limited located in Gibraltar.
While the Minister deduces from all these facts that SA Tropicana Europe and
FLTCE are sister companies under the control of the PepsiCo group, he does not
provide evidence of legal dependence between SA Tropicana Europe and FLTCE,
which are not linked by a capital link between them. Consequently, it is up to
the Minister to provide proof of the existence of a de facto dependency link
between these two companies. However, the Minister did not provide any other
element or indication that would make it possible to detect a de facto
dependence between these two companies other than the fact that they belong to
the same group. The fact that the two companies belong to the same group does
not, in the present case, constitute sufficient proof or evidence of de facto
dependence between SA Tropicana Europe and FLTCE in the absence of any other
element put forward by the Minister. Consequently, the Minister is not entitled
to maintain that, contrary to the assessment made by the first judges, the
conditions for the application of Article 57 of the General Tax Code were met
in order to base the taxes for which the Administrative Court of Amiens granted
discharge.
As regards the request for substitution of legal basis
:
9. The Minister requested, in the alternative, a
substitution of legal basis to confirm the validity of the taxes in dispute on
the basis of Articles 38 and 209 of the General Tax Code. He argues, to this
end, that Tropicana Europe waived the collection of revenue, which, in his
view, characterises an abnormal act of management.
10. Under the combined provisions of Articles 38 and
209 of the General Tax Code, the profit subject to corporation tax is that
which derives from operations of any kind carried out by the company, with the
exception of those which, by reason of their purpose or their methods, are
alien to normal management. An abnormal act of management is the act by which a
company decides to impoverish itself for purposes alien to its interests. As a
general rule, it is up to the administration, which does not have to decide on
the appropriateness of the management choices made by an undertaking, to
establish the facts on which it bases itself to invoke this abnormal character.
11. In order to prove the facts on which it relies,
the minister maintains that the new group organisation
adopted by agreement on 1 July 2009 between Tropicana Europe and FLTCE resulted
in a reduction in Tropicana Europe's turnover and profits, even though the
company had made significant investments and that this reorganisation
did not result in a transfer of risks, even though, until 1 July 2009, the
company re-invoiced losses to its customers. The administration deduces from
these facts that Tropicana Europe had no interest in agreeing to sign such a
contract on 1 July 2009 and in the subsequent reorganisation.
12. However, this reorganisation
was not limited to a simple "change in the invoicing circuit" as the
Minister maintains, but led to a significant change in operating conditions
since, before 1 July 2009, Tropicana Europe was engaged in the manufacture of
fresh fruit juices in cardboard packs and purchased fresh fruit juices which it
pasteurised, As of 1 July 2009, its activity was
reduced to that of a bottler on behalf of FLTCE, which became the owner of the
technology and intellectual property rights as well as the stocks. In addition,
Tropicana Europe argues that the previous agreement dating from 2002 did not
provide for any guarantee of production volume for the duration of the contract,
whereas the agreement signed in July 2009 provides for a guarantee of 60% of
its production capacity for a period of three years. Finally, Tropicana Europe
argues, without being contradicted by the Minister, that the highly competitive
fruit juice market in Europe has led to the closure of several of the group's
establishments in Europe. Consequently, the Minister cannot be regarded as
providing the proof, which is incumbent on him, that Tropicana Europe's
acceptance of the new organisational and operating
conditions resulting from the contract signed on 1 July 2009, which guaranteed
it a minimum volume of production in a highly competitive market, constituted
an abnormal act of management, even though its signature resulted in a
restructuring of the business which led to a reduction in the company's
turnover and profits. Consequently, the Minister's request for a substitution
of legal basis cannot be accepted.
13. It follows from all of the above that the Minister
of Action and Public Accounts is not entitled to argue that it was wrongly
that, by the contested judgment, the Administrative Court of Amiens discharged
the company Tropicana Europe from the additional taxes in question and made the
State liable for payment to that company of the sum of 2,000 euros on the basis
of Article L. 761-1 of the Administrative Justice Code. Consequently, the
Minister of Action and Public Accounts is, in any event, not entitled to
request that the Court order the company Tropicana Europe to pay back to the
State the sum of 2,000 euros granted to it by the first judges on the basis of
the provisions of Article L. 761-1 of the Administrative Justice Code.
On the claims for the application of Article L. 761-1
of the Code of Administrative Justice :
14. In the circumstances of the case, it is
appropriate to charge the State, the losing party in the proceedings, with the
payment to the company Tropicana Europe of the sum of 2,000 euros on the basis
of Article L. 761-1 of the Code of Administrative Justice.
DECIDES:
Article 1: The request from the Minister of Action and
Public Accounts is rejected.
Article 2: The State shall pay the sum of 2,000 euros
to the company Tropicana Europe on the basis of Article L. 761-1 of the Code of
Administrative Justice.
Article 3: This judgment shall be notified to the
Minister of the Economy, Finance and Industrial and Digital Sovereignty and to
the company Tropicana Europe.
A copy will be sent to the general administrator of
public finances in charge of the specialised
directorate for tax control in the North.
Deliberated after the public hearing of 30 June 2022
at which were seated :
- Mr Christian Heu, President of the Chamber,
- Mr. Mathieu Sauveplane,
president-assessor,
- Mr. Jean-François Papin,
First Counsellor.
Issued to the public by the court registry on 25
August 2022.
The president, rapporteur,
Signed: M. Sauveplane The
President of the Chamber,
Signed: C. Heu
The Registrar,
Signed: N. Roméro
The Republic instructs and orders the Minister of the
Economy, Finance and Industrial and Digital Sovereignty, insofar as he is
concerned, or any court commissioner required to do so, insofar as the ordinary
law against private parties is concerned, to ensure the execution of this
judgment.