The decision presents what is believed to be a “case of first impression” of a French appeals court concerning potential risks that taxpayers could encounter on transfers of intangible assets in conjunction with the renegotiation or redefinition of contractual relationships or business restructurings within a group.
In this case, the French tax authorities determined that the transformation of a French group distributor (one that had acted as a buyer and seller of alcoholic beverages for the French hotel and restaurant sector) into a “mere commissionaire” had in turn effectively resulted in a deemed transfer of the French client list from the French distributor to its related foreign supplier.
Thus, the French tax authorities assessed the French company for tax on the amount of profit that would have been received on such a transfer of the client list.
Under French tax law, withholding tax would have applied on amounts received for the taxpayer’s disposition of its client list. Accordingly, the appeals court judgment (issued 31 December 2012) specifically addressed the withholding tax issue.
Transfer pricing implications
In the view of transfer pricing professionals, the court’s findings could also have implications beyond the withholding tax issue—i.e., one with respect to whether there would be a deemed transfer and what would be the amount of such a transfer.
Considering that the commissionaire agreement was not an “autonomous agreement” but was to be considered as a framework agreement—i.e., one allowing the commissionaire not only to contract in its own name but also on behalf of the principal with the end-users—the court concluded that a French distributor that was “transformed into a commissionaire” could not be viewed as having transferred its client list.
This approach generally follows a position previously adopted by the French Supreme Court in a 2010 case that analyzed whether such a commissionaire would be considered a French permanent establishment of the foreign principal (Zimmer Ltc. v. Fisc, n°304715 / 30852 (31 March 2010)).
Moreover, the appeals court in the present case found that a reduction in the amount of compensation paid to the commissionaire, when compared to the level of profit realized under the former buy-sale arrangement, could not be determined to be evidence of a transfer of an intangible asset. According to the court, this was nothing more than an indication of the amount of fair compensation that the commissionaire was entitled to receive in proportion to the risk assumed and the new functions to be performed.
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