In its decision of July 7, 2017 (TA Paris, 7 July 2017, n°1607683, WB Ambassador), the TA of Paris retains a strict assessment of the provisions of article 212-I of the French Tax Code and the means of proof that the taxpayer can provide.
While the decision of the Montreuil TA (TA Montreuil, 30 March 2017, n°1506904, Sté BSA) confirmed that the administration was not justified in requiring the taxpayer to make a contemporary loan offer and that the demonstration could be provided by studies, the Paris TA seems to qualify this position by rejecting the study provided by the taxpayer, justifying that the interest rate applied to an intra-group loan is as if it were in line with an interest rate of 1.5%.
This study is based on three methods. The first method, based on the analysis of a concomitant bank loan, is rejected by the Paris TA because the factors taken into account by a bank to determine the rate are not specified. The second method, based on an average interest rate derived from similar lending operations (including the credit rating) selected on the Bloomberg database, is rejected because the appropriateness of the financial data used to determine the rating is not established, nor is it possible to understand the methodology applied with the documents provided. The third method, based on a comparison with six loan operations carried out by companies in the sector, is rejected because it is not concomitant with the contested loan and is not sufficiently detailed.
Although the Paris TA does not denounce the taxpayer’s recourse to a study, this strict approach reinforces the uncertainty as to the means of proof that the taxpayer can provide under the provisions of Article 212-I of the General Tax Code. However, the judgment does not reveal the details of the studies presented, making it difficult to assess their quality: the position of the Paris TA seems to be based mainly on the lack of solidity of technical studies. In any event, this judgment underlines the importance of preparing a comprehensive and transparent study on the methods used to support intra-group financing operations.
Finally, the Paris TA’s position is that “[the taxpayer] did not take into account the advantage for Barkelay to lend to the company when the notion of risk between companies whose interests are linked is limited compared to the risk of insolvency in the context of a bank loan”. By stressing that the taxpayer should have taken into account the advantage for the lender of lending to a group company, the Paris TA clearly places itself outside the OECD arm’s length principle, which is central to transfer pricing studies on financial transactions. In addition, this judgment is in opposition to the clear recital of the State Counsel ruling (CE, 19 June 2017, no. 392543, Société Général Electric France): it has just explained in detail that this advantage stemming from belonging to a group cannot be presumed, since this assessment must be carried out in the same way as a third party independent of the borrowing company, on the basis of the evidence that the administration must provide.
