The Conseil d'Etat has ruled in favor of Amycel in a dispute with the French tax authorities. This case, which concerned transfer pricing issues and the discrepancy in sales prices observed by the tax authorities for the same products vis-à-vis sister companies and non-affiliated companies, is a reminder of the imperative need to carry out a detailed comparative analysis of transactions and the economic conditions surrounding them.
The background to the case
The case concerns Amycel France, a subsidiary of the American Monterey group specializing in the production and marketing of mycelium. The tax authorities had reintegrated into the company's results, for the 1998 to 2001 financial years, sums considered as profits indirectly transferred to foreign companies in the same group, pursuant to Article 57 of the CGI. To this end, the tax authorities noted that for the same products, the company charged lower prices to its sister companies in the Netherlands and the United Kingdom than to its third-party customers in France and elsewhere.
The judicial process
After a succession of unsuccessful attempts before the Orléans Administrative Court and the Nantes CAA, Amycel appealed to the Conseil d'Etat. The Conseil d'Etat not only annulled the CAA's decision on the grounds of insufficient reasoning, but also ruled in the company's favor on the merits of the case.
The decisive arguments
The Conseil d'Etat emphasized that the tax authorities had correctly established that the prices charged by Amycel France to its sister companies were lower than those charged to its other customers. However, the tax judge accepted the company's argument that neither the tax authorities nor the CAA had examined whether the independent customers to whom Amycel sold its products at a higher price were in a similar economic situation to its sister companies. This difference in situation was likely to influence the price charged, not only because of the combination of functions and risks borne by the sister companies and third-party customers, but also because of their place in a global value chain.
The implications of the decision
This is a valuable decision, as it reminds us that in the case of a remunerated transaction (i.e. one not carried out free of charge), the demonstration of an anomaly by the tax authorities must necessarily involve highlighting an advantage by comparison.
Now, in addition to reviewing the functions, risks and assets of the parties to the transaction (the functional analysis), this comparative analysis must necessarily involve a study of the economic circumstances of the transaction, as well as the economic strategy of the parties. In this case, the third parties to whom Amycel sold its products were end consumers, whereas its sister companies were wholesalers, and therefore positioned at a different stage of the value chain. This positioning most certainly explained the price differential, enabling them to generate their own margins when reselling to consumers on their markets.
For international groups, this decision is also a reminder of the importance of carefully documenting their transfer pricing and payment terms policies, taking into account the specificities of their business sector.
