FRANCE Law and Practice Contributed by: Alexis Popov, Martin Serre and Stéphane Duchesne, &Co Advisory
14.2 Significant Court Rulings Burden of Proof
Arm’s Length Range and Comparables • Reliance on the median of the arm’s length range may be appropriate depending on the circum - stances of the case (Conseil d’État, 6 June 2018, No 409645, GE Healthcare ). • While, in principle, any point within the interquartile range may be selected, the FTA may rely on the median in order to eliminate extreme values, unless the taxpayer demonstrates that another point within the range would be more appropriate (CAA Paris, 22 November 2023, No 21PA06233, SASU Menarini Diagnostics France ). • The FTA may perform a reassessment based on a single internal comparable in the context of the application of the CUP method, provided that it demonstrates that this reference has a sufficient level of reliability (Conseil d’État, 7 May 2025, No 491058, Sté A. Menarini Diagnostics France ). Intangible and Marketing Contributions • The recognition of the concept of a “flagship” store confirms that marketing and operating expenses incurred by a French entity – beyond those expect - ed of a simple independent distributor – may evidence its contribution to the development of the group’s brand intellectual property. Such excess costs may therefore be characterised as profit shifting (CAA Paris, 30 June 2022, No 20PA03601, Ferragamo France ). • A change in functional status, such as a conver - sion from distributor to commissionaire following a reorganisation, may constitute an implicit transfer of a customer base where the reorganised entity previously enjoyed commercial autonomy and maintained its own customer relationships (Conseil d’État, 4 October 2019, No 418817, Piaggio ). • By contrast, in the absence of commercial auton - omy, a branch cannot be considered to have developed a customer base distinct from that of its parent company. Accordingly, no implicit transfer of intellectual property can be characterised in such circumstances (Conseil d’État, 21 December 2022, No 450796, Bupa Assurances ). Financing • The arm’s length interest rate must reflect the bor - rower’s standalone creditworthiness and may be established by reference to comparable financing
• The French Tax Authorities benefit from a rebut - table presumption of profit shifting only where they first establish the existence of an advantage, either through a comparability analysis or by demonstrat - ing an unjustified difference between the agreed price and the market value. The burden then shifts to the taxpayer, who must rebut this presump - tion by demonstrating that the benefit granted was matched by at least equivalent consideration (Conseil d’État, 7 November 2005, Nos 266436 and 2266438, Cap Gemini Conseil d’État, 16 March 2016, No 372373, Sté Amycel ). • The existence of recurrent losses, while it may constitute an indication of profit shifting, is not in itself sufficient to establish a transfer of profit, insofar as a loss-making situation may result from other economic factors unrelated to transfer pricing (CAA Versailles, 5 May 2009, No 08VE02411, Man Camion & Bus ). • A conversion from distributor status to agent sta - tus, resulting in reduced remuneration, does not in itself constitute profit shifting (CAA Versailles, 16 February 2012, No 10VE00752, Microsoft France ). • The deduction of the R&D tax credit ( crédit d’impôt recherche ) from the cost base in the context of the recharging of R&D services does not, in itself, con - stitute profit shifting (Conseil d’État, 19 September • The comparability analysis must be sufficiently pre - cise and must take into account the actual circum - stances, in particular the entity’s functions within the economic process and value chain (Conseil d’État, 16 March 2016, No 372373, Sté Amycel ). • A related party may assume economic risk without necessarily being characterised as the “principal entrepreneur” within the group, provided that it exercises effective control over that risk, imple - ments mitigation measures, and has the financial capacity to bear it (Conseil d’État, 4 October 2021, Nos 443130 and 443133, SKF/RKS ). 2018, No 405779, Sté Philips France ). Importance of the Functional Analysis/ Comparability Criteria
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