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  • Service: Tax, Global Transfer Pricing Services
  • Type: Regulatory update
  • Date: 8/28/2013

France - Appellate courts uphold transfer pricing adjustments 

August 28:  Administrative courts of appeals in France recently issued decisions affirming transfer pricing adjustments.
  • In one case, the court concluded the transfer pricing rules applied because the French taxpayer exercised direction and control over a Swiss entity (based on a finding that the Swiss entity was economically dependent on the French taxpayer).
  • In the second case, the French taxpayer failed to establish a business purpose for selling its goods to foreign related entities at prices that were less than the prices at which the same goods were sold to unrelated third parties.

Lyon court of appeals

The administrative appeals court in Lyon concluded that the French transfer pricing rules applied to transactions between a French manufacturer of chairs for handicapped persons and its exclusive Swiss distributor. Cour administrative d’appel de Lyon, Chambre 5, No. 11LY00678 (11 July 2013).


The issue was whether the French manufacturing entity (Frenchco) and the Swiss distributor (Swissco) were economically dependent and, thus, whether transactions between them were subject to the transfer pricing rules of section 57 of the French general tax code (Code général des impôts).


Under the facts presented and considered by the court:


  • Swissco had only one employee.
  • Although it had an address in Switzerland listed as its domicile, Swissco appeared to pay no rent for any commercial premises.
  • Most of Swissco functions were performed by Frenchco.
  • The direction and control of Swissco were exercised by the manager of Frenchco (inter alia, he possessed Swissco letterhead and could access Swissco’s accounting via his cellular phone).

Based on these facts, the court concluded that Frenchco exercised direction and control over Swissco, and that Swissco was economically dependent on Frenchco. Thus, the court concluded that the transfer pricing provisions of the French tax code were properly applied to the transactions between Frenchco and Swissco.

Nantes court of appeals

The administrative appeals court in Nantes concluded that sales of mushrooms by a French taxpayer to its Dutch and UK “sister” companies at prices lower than those with respect to sales of mushrooms to third parties were subject to the French transfer pricing rules under section 57 of the French tax code. Cour administrative d’appel de Nantes, Chambre 1, No. 12NT0023 (25 July 2013).


The French tax authorities made a transfer pricing adjustment with respect to the mushroom sales between the taxpayer and its related entities in the Netherlands and the UK. The transfer pricing method selected by the French tax authorities was the comparable uncontrolled price (CUP) method.


The French taxpayer countered that its Dutch and UK “sister” companies took on marketing, delivery, and inventory expenses that third-party clients did not undertake and that it was these activities that justified the difference in pricing.


The French taxpayer also asserted that the Dutch tax authorities had already audited the same transactions using a different (contrary) method.


The Nantes appellate court reiterated that, under the transfer pricing rules of section 57, once the French tax authorities establish there is a difference in pricing for transactions between the taxpayer and related entities and between the taxpayer and unrelated third parties:


  • The French taxpayer is deemed to have conferred a benefit on the related companies.
  • The burden of proof falls on the French taxpayer, to justify the difference in pricing (i.e., justified as being favorable to its own business).

In this case, the appellate court found that the French taxpayer had failed to satisfy its burden of proof, and thus affirmed the transfer pricing adjustments.



For more information, contact a transfer pricing professional with Fidal Internationale* in Paris:


François Vincent

+33 (0)6 11 70 32 35


* FIDAL is an independent legal entity that is separate from KPMG International and its member firms.




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