France vs SA Engie, June 2024, CAA Paris, Case No 21PA01277

Category: Arm's Length Principle, Services and Fees | Tag: , , , , , , ,
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SA Engie, the holding company of an international group formed from the merger of the Gaz de France and Suez groups and carrying on an active operational activity in the field of energy sales to private and business customers, had, until 2018, a division dedicated to the management of liquefied natural gas (LNG), incorporating SA Engie then called GDF Suez and its American (GDF Suez Gas North America LLC, known as GSGNA) and its Luxembourg subsidiary (GDF Suez LNG Supply SA, known as GSLS), whose business consisted of purchasing, transporting by means of LNG carriers and selling volumes of this resource, based on long-term supply contracts and medium- and long-term sales contracts held by each of the group’s three entities. In addition, in order to manage unforeseen and unpredictable events at the time of deliveries and to dispose of residual volumes, a ‘single voice’ arrangement had been formalised by three intra-group contracts or ‘service agreements’, including a ‘scheduling’ service contract, relating to the organisation and monitoring of LNG loading, unloading and transport, a ‘shipping’ service contract, relating to the organisation and monitoring of the maintenance, repair and compliance of the fleet of LNG carriers, and a ‘cargo purchase and sale’ service contract relating to the purchase or sale transactions carried out on the spot market by SA Engie as sole intermediary for its subsidiaries.

The tax authorities found that SA Engie had not been remunerated at arm’s length for services relating to spot purchases and sales of liquefied natural gas (LNG) performed for the benefit of its subsidiaries and issued an assessment of additional taxable income for the years 2011 – 2014.

SA Engie lodged two appeals with the Administrative Court, which resulted in the partial annulment of the assessment.

An appeal was then lodged with the Administrative Court of Appeal to overturn the reminder of the assessment.

Judgment

The Administrative Court of Appeal ruled in favour of SA Engie and annulled the assessment notice.

 

Excerpts in English

“13. As a result, SA Engie is entitled to maintain that the tax authorities have not provided the proof it is required to provide of a transfer of profits to the American and Luxembourg subsidiaries in question, within the meaning of the aforementioned Article 57 of the General Tax Code, resulting from the absence of valuation of the asset represented by the existence of a standardised framework agreement (‘MSPA’), concluded by GDF Suez with a view to carrying out transactions on the spot market with a large number of producers or customers, whereas, moreover, the administration, which did not determine the share of the profit that it considered should accrue to GDF Suez directly as a function of the profit derived from the purchase or sale transactions carried out on the spot market, did not make any comparison between the share of the profit thus likely to be attributed, in particular by way of commission, to an independent intermediary, and the share resulting from the application of the margin on costs of 10% attributed to GDF Suez.”

“16. In these circumstances, the administration does not demonstrate, as it is required to do in order to establish the existence of an indirect transfer of profits, that SA Engie carried on an activity on the spot market, on behalf of its subsidiaries, that is fundamentally distinct from the activity that an arm’s length broker would carry on there. It follows that it was not entitled to apply the provisions of Article 57 of the General Tax Code to rectify the prices at which SA Engie provided the services at issue to its subsidiaries. Consequently, SA Engie is entitled to request that its tax bases for corporation tax and the additional contributions to that tax, as well as the tax bases for the business value added contribution and the additional tax on that contribution, in respect of the financial years ending in 2011, 2012, 2013 and 2014, be reduced by the respective sums of EUR 8,702,050, EUR 52,122,432, EUR 44,078,541 and EUR 19,863,924, disregarding, in respect of the 2014 financial year, the increase in the loss carried forward and the reduction in the business value added tax referred to in paragraph 4 of this judgment. As a result, the withholding tax payable by SA Engie in respect of the profits deemed to have been distributed to the American company GSGNA should also be discharged on the basis of the combined provisions of Articles 119 bis 2 and 187 of the French General Tax Code and the Franco-American tax treaty, in the respective amounts of EUR 1 051 181 in respect of 2012, EUR 593 410 in respect of 2013 and EUR 502 422 in respect of 2014, and the corresponding penalties should also be discharged.”

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