In transfer pricing, the question of the burden of the proof is one of the major issues at stake. The French Supreme Court (Conseil d’Etat) decision dated June 19th, 2017 (General Electric Money Bank) does not derogate from the rule. It brings some light on the issue of group’s implicit support in the evaluation of the credit worthiness of a borrowing subsidiary.
By this decision, the Conseil d’Etat qualifies the potential impact of the group’s creditworthiness on the credit rating of the subsidiary. Indeed, “The membership of the borrower in a group of companies [] could only be taken into account for the appreciation of its default risk as long as it has an effective incidence on its solvency. In this regard, if the tax authorities, which assume the burden of the proof, can presume that a guarantee granted by the parent company can impact the solvency risk of the beneficiary entity, they cannot presume that the mere membership in a group of companies can alone have such an effect…”
This jurisprudence limits the tax authorities’ capacity to move away from the stand alone approach in terms of credit rating.
It strongly limits the importance of the implicit support within a group of companies, as it had already underlined in 2010 a Canadian jurisprudence on the same group, General Electric.
