In Baker International the court concluded that if interest is not charged in respect of deferrals of payments granted to a related company, it is considered either an abnormal act of management or is subject to Section 57 of the tax code.
Excerpt
“…it is clear from the investigation that the share of the applicant company’s turnover corresponding to sales of equipment to its subsidiary decreased significantly during the years under investigation, as did sales to Elf; whereas, on the other hand, the above-mentioned provisions of Article 57 prevented S.A. BAKER INTERNATIONAL FRANCE from charging its subsidiary sales prices that differed from the public prices; finally, neither the operating conditions decided by the company “Bi-Gabon” with regard to stocks and the taking back of equipment, nor the fact that the financial health of this subsidiary was able to provide it with income, can suffice to justify the interest that S. A. would have had in this matter. A. BAKER INTERNATIONAL FRANCE to grant interest-free payment deadlines; that, consequently, the administration, and then the first judges, were right to consider that the disputed payment terms constituted, regardless of how they were financed by the applicant company, a financial advantage granted without consideration to the “Bi-Gabon” subsidiary and, consequently, a transfer of profits within the meaning of the provisions of Article 57 of the General Tax Code;”
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