CAA PARIS, 2ND CH., JUNE 29, 2022, 20PA03996 WB AMBASSADOR
OUR ANALYSIS
Problem posed by the judgment
THE TAXPAYER'S FREEDOM OF PROOF IS ENSHRINED
The Court of Appeal has endorsed the December 10, 2020 ruling by the Conseil d'Etat, which had adopted a position favorable to taxpayers. Indeed, this ruling confirms the opinion issued a year earlier (CE July 10, 2019, n°429426, SAS Wheelabrator), by reaffirming the principle of freedom of proof in determining the interest rate on loans concluded between companies belonging to the same group.
From now on, tax authorities and judges must genuinely debate the evidence provided by the taxpayer to justify the normal and arm's length nature of an intra-group interest rate. It is in the context of this debate that the Administrative Court of Appeal assesses the evidence provided by AB Ambassador and confirms that the interest rates charged on bond loans can constitute proof of the arm's length nature of the rate on an intra-group loan, provided that it is proven that these loans constitute a realistic alternative to an intra-group loan (i.e. a reference to the debt market). In this case, the evidence provided by the company was sufficiently elaborate to justify the rates applied to the intra-group loans.
THE FINAL EPISODE IN THE WB AMBASSADOR SAGA, BUT WHAT ABOUT THE SEQUEL?
The ruling handed down on June 29, 2022 brings to a close the WB Ambassador saga, which has given rise to a number of issues and questions that have fuelled a strong movement in case law on intra-group loans, as well as debate on the link between transfer pricing and Article 212-1 of the French General Tax Code. The French Administrative Court of Appeal has clarified the nature and mechanics of proving the normality of the interest rate applied in the case of intra-group loans. This decision is part of the analysis inspired by Bercy's fact sheets on intra-group financial transactions, and by the body of case law formed by the Studialis, Wheelabrator, Appex Tool and BSA decisions.
Nevertheless, while this decision clarifies intra-group loan situations, many uncertainties remain as to how to demonstrate the arm's length rate attached to other financial vehicles, notably Cash Pools. The ruling also leaves minority shareholders still subject to the compartmentalization of Article 212-I and the strict application of the Article 39-1-3 rate, as the Trocadéro decision recently reminded us. Lastly, although the taxpayer can now refer to the bond market, he still needs to be able to demonstrate that such a reference was a realistic alternative given his situation. While the burden of proof on the taxpayer has been eased (somewhat), justifying a borrowing rate different from that referred to in article 39-1-3 of the CGI still remains a challenge for taxpayers. Judges still have some way to go before giving us all the keys to transfer pricing applied to financial flows.
