Financial interest paid by a company to its associates is constrained by a confusing legal and tax system. A quick reminder for those who like puzzle games:
Pursuant to Article 39-1-3 of the French General Tax Code, this interest is capped at an average rate set quarterly by the Treasury Department and published in the Journal Officiel.
However, article 212-I of the same code opens a loophole, by stipulating that this rate may be different, provided that it reflects market conditions and, above all, that it is applied to associates linked to the company by ties of dependence, the definition of which is referred to article 39-12.
Under article 39-12 of the same article, two companies are deemed to be dependent on one another: "a- when one of them directly or through an intermediary holds the majority of the share capital of the other, or in fact exercises decision-making power over it; "b- when both of them are placed, under the conditions defined in a, under the control of the same third party".
The combination of these articles creates a back-and-forth mechanism that can get the taxpayer lost in its maze. The Divalto group paid the unfortunate price before the Nancy CAA.
In this case, company F had issued bonds convertible into shares (OCAs) at a rate exceeding that of article 39-1-3 applicable to the same period. These bonds were held by company P, a minority shareholder in company P, but which would have become the majority shareholder once the bonds had been converted into shares. In anticipation of this, company P therefore considered it legitimate to apply the alternative rate of article 212-I, on the grounds that company F would by necessity be a majority shareholder within the meaning of article 39-12.
The Administrative Court of Appeal rejected this anticipatory application of the provision, pointing out that it must be interpreted strictly.
CAA Nancy June 20, 2024 no. 22NC01300
