Fibusa SAS is a holding company with holdings in four Romanian companies whose purpose is to develop wind power stations in Romania. In 2011, 2012, In 2011, 2012, 2013 and 2014, Fibusa granted these companies interest-free loans for a period of less than one year, renewable for the same period, with the possibility of repaying these loans at any time, for a total amount of almost 26 million euros in 2011, more than 33 million euros in 2012 and more than 35.5 million euros in 2013 and 2014, which were financed mainly by loans taken out by it. 2,086,730 for the year ended 2013 and €2,385,774 for the year ended 2014.
Following an audit, an assessment of additional corporate income tax and corresponding penalties for the financial years 2011 – 2014 was issued by the tax authorities. The lack of interest on the loans was considered indirect transfers of profits abroad.
Not satisfied with the assessment Fibusa filed an complaint which was rejected by the Administrative Court in December 2020.
An appeal was then filed by Fibusa with the Administrative Court of Appeal.
Judgement of the Court
The court upheld the assessment but made adjustments to the applicable interest rate on the loans and thus the amounts of additional taxable income calculated by the tax authorities.
Excerpts (Unofficial English translation)
“8. Under the terms of Article 57 of the General Tax Code, which is applicable to corporation tax by virtue of Article 209 of the same Code: “For the purposes of calculating the income tax due by companies that are dependent on or control companies located outside France, profits indirectly transferred to the latter, either by way of an increase or decrease in purchase or sale prices, or by any other means, are incorporated into the results shown in the accounts (…)”.
9. These provisions establish, as soon as the administration establishes the existence of a link of dependence and a practice falling within the provisions of Article 57 of the General Tax Code, a presumption of indirect transfer of profits which can only be usefully challenged by the company liable to tax in France if it provides proof that the advantages it granted were justified by the obtaining of consideration.”
“11. As the court held, in view of the relationship of dependence between the applicant company and its subsidiaries and its waiver of the right to receive interest in return for the advances granted, the presumption of indirect transfer of profits established by the provisions of Article 57 of the General Tax Code can be rebutted by Fibusa only if it proves that the advantages thus granted were justified by the obtaining of consideration.”
“Although the applicant company refers to the situation of financial difficulty in which these companies found themselves, there is no evidence in the investigation to confirm the reality of these difficulties before 2014, the year in which the companies were admitted to insolvency proceedings under Romanian law. Furthermore, the accounting information produced by the applicant company, while showing investments made by those subsidiaries, also shows that they did not achieve any turnover and the information provided by the Romanian authorities indicates that the investments made are, for the most part, not related to wind farm projects and that the companies do not have any of the administrative authorisations required for such installations. In those circumstances, in the absence of any evidence to corroborate the reality of the activity of the beneficiary companies or of financial difficulties as from 2011, the applicant company, which invoked at first instance the financial difficulties of the subsidiaries and invokes on appeal the prospects of dividends which it expected to receive by granting the loans granted, does not justify any consideration for those interest-free loans. Thus, the administration was right to consider that the advantages granted by the applicant company to its subsidiaries constituted indirect transfers of profits.”
“14. With regard to the sums borrowed by Fibusa to finance the advances granted to its subsidiaries, i.e. EUR 21 004 750 in 2011, EUR 26 309 187 in 2012, EUR 24 047 500 in 2013 and EUR 27 257 711 in 2014, it follows from what has been said above that it is appropriate to retain 1,188,828 in 2011, EUR 2,036,937 in 2012, EUR 2,418,713 in 2013 and EUR 1,594,425 in 2014, corresponding to the interest actually borne by Fibusa during each financial year in respect of the loans it took out.
15. With regard to the sums made available to Fibusa’s subsidiaries but not borrowed by it, namely EUR 4 981 250 in 2011, EUR 6 813 313 in 2012, EUR 11 487 500 in 2013 and EUR 8 332 789 in 2014, the applicant company relied at first instance on the rates of 4.25%, 3.75%, 3% and 2.4%, corresponding to the average interest rates for advances on securities applied by the Banque de France. It is not contested by the administration and there is nothing in the investigation to show that the rates of remuneration that the company could have obtained from a financial institution or similar body with which it would have placed sums of an equivalent amount under similar conditions would have been higher. In these circumstances, these rates should be retained and the company should be relieved of the amount of the taxes in dispute corresponding to the difference between the taxes to which it was subject and those resulting from the application of these rates to the sums of EUR 4,981,250 in 2011, EUR 6,813,313 in 2012, EUR 11,487,500 in 2013 and EUR 8,332,789 in 2014.”
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