In the case of Montlaur Sakakini the tax authorities had issued an adjustment where the arm’s length interest rate on deposits had been determined to be between 10-12%.
The company held that the interest rate should be 4.5%.
Judgement of the Court
The court decided in favour of the company as no proof of the validity of an interest rate higher than the 4.5% had been provided by the authorities.
Excerpt
“…in order to justify the interest rates of 12.5%, 12.5%, 11.79% and 10.63% which the tax authorities retained, respectively for the financial years …, 1984 and 1985 respectively on the advances still in dispute with the MONTLAUR company, the Minister of the Economy and Finance refers to the rates at which certain financial establishments would have remunerated twelve-month deposits of more than 500,000 francs and three-month deposits of 100,000 francs, as well as to the average rates charged on the interbank market ; that none of these investments is directly comparable by its nature and duration to the advances granted by MONTLAUR SAKAKINI; that, in so doing, the Minister does not provide proof of the validity of an interest rate higher than the 4.5% admitted by MONTLAUR SAKAKINI; that, as a result, and without it being necessary to rule on the other pleas in law of the application, the MONTLAUR SAKAKINI company is entitled to maintain that it is wrongly that, by the contested judgment, the administrative court of Marseille rejected its application in its entirety…”
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