The case identifying information is: Cour d’appel de Paris, 9eme Chambre, No. 10PA00748 (31 December 2012)
The taxpayer in this proceeding was represented by lawyers with Fidal Direction International* who are the authors of this report.
The French tax authorities asserted that a French buy-sell distributor that was converted into a commissionaire of a UK entity was deemed to have transferred its French (local) clientele to its UK principal, and thus had effectively received consideration for this transfer that would be subject to French corporate income tax and withholding tax.
The French tax authorities found that the deemed transfer ought to have been “indemnified;” that the amount of the indemnity was the amount of the advertising expenses of the French entity during the prior fiscal years; and that this amount was to be added back to the French company’s taxable profits, thus resulting in additional assessments of corporate income tax and withholding tax.
The taxpayer sought judicial review, and a lower court agreed with and found for the tax authorities.
On appeal, the Court of Appeal of Paris reversed the decision of the lower court, but only addressed the withholding tax issue.
According to the appellate court, a commissionaire is an agent acting on behalf of its principal but in its own name, and has the contractual relationship with local clientele. Considering the legal status of the commissionaire/agent, the appellate court held that the taxpayer’s conversion from a buy-sell status to a commissionaire structure involved no transfer of clientele. Thus, withholding tax assessments made by the French tax authorities were dismissed.
From the court’s decision:
La société de participations et d'études des boissons sans alcool est déchargée de la retenue à la source et des pénalités correspondantes auxquelles elle a été assujettie au titre de l'exercice 2000 à raison de la conclusion du contrat de commissionnaire. Réformation du jugement n° 0521283, 0603697 du 10 décembre 2009 du Tribunal administratif de Paris en ce qu'il a de contraire au présent arrêt. Mise à la charge de l'Etat au profit de la société de participations et d'études des boissons sans alcool de la somme de 1 500 euros en application de l'article L. 761-1 du code de justice administrative. Rejet du surplus des conclusions de la requête.
A case concerning similar facts is pending before the Administrative Court of Versailles, which is expected to issue a decision in the forthcoming weeks on the corporate income tax issue.
Tax professionals with Fidal have noted that it may be assumed that the Versailles court (as did the Court of Appeal of Paris) will uphold the principle that the legal analysis prevails over tax or economic consequences of this corporate restructuring—what would appear to be an obvious solution, given that commissionaire status is strictly regulated by French law.
However, this position is not shared by the French tax authorities, who recently filed an appeal of the December 2012 decision from the Court of Appeal of Paris (described in this report) to the French Supreme Court (Conseil d’Etat).
Tax professionals can be expected to continue to litigate this issue and continue to assert that (1) the commissionaire/agent only—not the principal—is the legal owner of the clientele; and (2) the French company did not suffer any economic harm due to its change in status, for which it would have needed to be indemnified.
For more information, contact a tax professional with Fidal Direction Internationale in Paris, or the French KPMG Tax Center in New York:
Gilles Galinier-Warrain, French Tax Center, KPMG LLP, New York
Olivier Ferrari, Tax Partner
+33 (0)1 55 68 14 76
Patrick Seroin, Tax Partner
+33 (0)1 55 68 15 93
Béatrice Lunghi, Tax Partner
+ 33 (0) 1 55 61 15 21
*Fidal Direction International is a French law firm that is independent from KPMG and its member firms.