In 2008 and 2009, French subsidiaries Industeel Creusot and Industeel Loire, which are part of the ArcelorMittal France tax group, paid royalties to their Luxembourg parent company, ArcelorMittal SA, under trademark licence agreements. The royalty was set at 1 percent of third-party turnover for the use of the ArcelorMittal brand and logo.
The tax authorities challenged the deductibility of the royalties, arguing that they were paid without real economic consideration, constituting an abnormal management act and a transfer of profits under Article 57 of the General Tax Code. However, the tax authorities accepted a symbolic royalty of 0.1 percent of turnover.
ArcelorMittal argued that the 1 percent royalty was justified by the use of a genuine group trademark that provided the Industeel subsidiaries with commercial and reputational benefits, and that the tax authorities had failed to prove the absence of consideration.
Judgment
The Court of Appeal of Paris dismissed the appeal and it upheld the tax assessment.
The Court held that the tax authorities had demonstrated the absence of real consideration. It noted that the subsidiaries continued to operate under their own recognised Industeel brand and that the ArcelorMittal brand functioned only as an umbrella brand. The Court also noted that no decisive influence on sales had been demonstrated, given the technical, B2B nature of the products and the long order lead times. Furthermore, the Court noted that key functions, such as quality control, remained with the French entities. The court confirmed that, in the absence of proven tangible economic benefits, only symbolic remuneration was justified.
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