SA Tropicana Europe Hermes is a French permanent establishment of SA Tropicana Europe, located in Belgium. The French PE carried out the business of bottling fruit juice-based drinks. In 2009, a new distribution contract was concluded with the Swiss company FLTCE, which was accompanied by a restructuring of its business. Before 1 July 2009, Tropicana was engaged in the manufacture of fresh fruit juices in cardboard packs and purchased fresh fruit juices which it pasteurised. As of 1 July 2009, its activity was reduced to that of a contract manufacturer on behalf of FLTCE, which became the owner of the technology and intellectual property rights as well as the stocks. The re-organisation led to a significant reduction in the company’s turnover and profits. Tropicana Europe was subject to two audits, at the end of which the tax authorities notified it of tax reassessments in respect of corporate income tax, withholding tax and business value added contribution (CVAE) for the years 2010 to 2013, together with penalties. It also notified the company of tax adjustments, together with penalties, in respect of the additional contribution to corporation tax for the years 2012 and 2013. According to the tax authorities Tropicana Europe’s new contract was not at arm’s length and constituted an abnormal act of management. Tropicana filed an appeal with the Administrative Court, where the assessment issued by the tax authorities was later set aside. An appeal was then filed by the tax authorities with the Court of Appeal. At issue was whether FLTCE was located in a privileged tax regime and whether there was a link of dependence between Tropicana and FLTCE and thus the basis of the tax assessment. Judgement of the Court of Appeal The court dismissed the appeal of the tax authorities and upheld the decision of the administrative court. Excerpts “As regards the existence of a privileged tax regime : 6. Before the first judges, Tropicana Europe disputed that FLTCE was established in a country with a privileged tax regime within the meaning of the second paragraph of Article 238 A of the General Tax Code. The first judges considered that by simply relying on the overall corporate tax rate of 13% in the canton of Bern, in the Swiss Confederation, where FLTCE’s head office is located, and the significant difference between this rate and the corporate tax rate of 33.33% in France, the tax authorities did not establish that FLTCE was established in a country with a privileged tax regime, the tax authorities did not establish that the amount of income tax to which FLTCE is subject is less than half the amount of income tax for which it would have been liable under the conditions of ordinary law in France, if it had been domiciled or established there, and, consequently, that FLTCE would be subject to a preferential tax regime pursuant to the aforementioned provisions of Article 238 A of the French General Tax Code. As this ground of the judgment is not contested on appeal by the Minister, the latter must be considered as renouncing to rely on the establishment of FLTCE in a country whose tax regime is privileged pursuant to the provisions of Article 238 A of the General Tax Code. Consequently, the Minister bears the burden of proof of the existence of a link of dependence between Tropicana Europe and FLTCE.” “As regards the existence of a link of dependence : 7. In order to discharge Tropicana Europe from the taxes it was contesting, the first judges noted that, in order to establish a relationship of dependence between this company and FLTCE, the tax authorities based themselves on the fact that these two companies belonged to the same multinational group, PepsiCo, and deduced that, by relying solely on this factor, the authorities, who bear the burden of proof, did not establish any relationship of dependence between the two companies within the meaning of Article 57 of the General Tax Code. 8. In order to prove the existence of a relationship of dependence between Tropicana Europe and FLTCE, the Minister noted that SA Tropicana Europe Hermes is a permanent establishment of SA Tropicana Europe, located in Belgium, which is 99.99% owned by Seven’Up Nederland BV, which in turn is wholly owned by Pepsico Inc. FLTCE, located in Switzerland in the canton of Bern, is wholly owned by Frito Lay Compagny Gmbh, also located in Switzerland in the same canton. This company has been controlled since 14 December 2011 by PepsiCo Limited located in Gibraltar. While the Minister deduces from all these facts that SA Tropicana Europe and FLTCE are sister companies under the control of the PepsiCo group, he does not provide evidence of legal dependence between SA Tropicana Europe and FLTCE, which are not linked by a capital link between them. Consequently, it is up to the Minister to provide proof of the existence of a de facto dependency link between these two companies. However, the Minister did not provide any other element or indication that would make it possible to detect a de facto dependence between these two companies other than the fact that they belong to the same group. The fact that the two companies belong to the same group does not, in the present case, constitute sufficient proof or evidence of de facto dependence between SA Tropicana Europe and FLTCE in the absence of any other element put forward by the Minister. Consequently, the Minister is not entitled to maintain that, contrary to the assessment made by the first judges, the conditions for the application of Article 57 of the General Tax Code were met in order to base the taxes for which the Administrative Court of Amiens granted discharge.” “As regards the request for substitution of legal basis : … 12. However, this reorganisation was not limited to a simple “change in the invoicing circuit” as the Minister maintains, but led to a significant change in operating conditions since, before 1 July 2009, Tropicana Europe was engaged ...

Determination of the criterion “decisive influence” or controlling interest. There is no basis for a general conclusion that, where two persons have the same ability to influence decision-making, they both exercise joint control. Otherwise, Section 12(2) of the Corporation Tax Act should apply to any case where two or more persons exercise equal control over the management of a company, even if the only way in which decisions could ever be taken in the company is if they are taken in concert. It is not excluded that two persons have established a mechanism for exercising influence on an equal footing precisely in order to ensure that neither has a decisive influence. In order to apply Section 12(2) of the Law on Corporate Income Tax in accordance with its meaning, i.e. to identify cases where the decisive influence of a person has been the basis for entering into transactions which are not in line with market prices, it should be possible to identify a set of circumstances in circumstances of equal influence which makes it possible to consider that two or more persons are acting jointly. Such circumstances may be apparent, inter alia, from the activities of the undertaking over an extended period of time, from the location of the disputed transactions in the context of the other business activities, from the links between the persons concerned, in particular in the long term. Excerpt from the Judgement of the Supreme Court “[16] As can be seen, the Supreme Court in the above-mentioned case did not find any difference in principle between the direct or indirect interpretation of decisive influence contained in the Law on Concerns and other laws. There would be no reason to find such a difference in the present case, since, in view of the general meaning of the concept of decisive influence, it must be established that one person can take decisions (control) in relation to the company and, in the absence of specific agreements on other arrangements, such a situation must be established in the first place by a participation, from which, in ordinary cases, further derive the corresponding voting rights and the possibility to appoint and dismiss the management body. The Regional Court, too, in interpreting Article 1(12) of the Credit Institutions Law and concluding that decisive influence means the ability to control the decisions of the governing body of the company with regard to the conclusion of economic transactions and their value, has not in fact changed this general understanding, i.e. it has emphasised the ability to control decision-making. Moreover, any interpretation of the concept of ‘decisive influence’ cannot contradict its immediate general meaning, namely that the person concerned has the power to make a difference in the decision-making, in the determination of issues. In accordance with the general principles of commercial companies, this will normally be secured by an appropriate share in the share capital. At the same time, it should be noted that the Regional Court has used the concept (control) explained in Article 1(12) of the Credit Institutions Law to explain the concept of “decisive influence”, which is used in the provision as a means of clarification, but insofar as it does not detract from the meaning – the characteristic of being able to decisively influence decisions – the interpretation is not incorrect. One can agree with the representative of the State Revenue Service at the hearing that it is important to apply the concept of ‘decisive influence’ contained in Section 1(5) of the Law on Corporate Income Tax in its own right in accordance with its meaning. [17] The judgment of the District Court, after a legal analysis, further assesses the circumstances of the case. The Court finds that the status of the members of the applicant’s board of directors in the applicant, as well as their participation in the capital of the applicant’s parent company (50 per cent each) and their status as members of the parent company’s board of directors, created a set of circumstances which ensured decisive influence over the applicant and the ability to exercise (joint) control over the applicant. It follows from the above that the Regional Court, although it had previously examined the question of the elements of decisive influence of a single person, reached its conclusion by finding that two persons exercised control jointly. The assessment is thus based on an aspect which goes beyond the concept of decisive influence as contained in the Law on Concerns and the Law on Credit Institutions. The question of joint control requires consideration of whether decisive influence can be said to exist even if each person individually does not formally possess it under either definition and whether it is possible to consider the possibility of control by those persons together. The conclusion that, where two persons have the same ability to influence decision-making, they both exercise joint control is not self-evident. Otherwise, Section 12(2) of the Corporation Tax Act should apply to any case where two or more persons exercise equal control over the management of a company, even if the only way in which decisions could ever be taken in the company is by a decision agreed between them. It is not excluded that two persons have established a mechanism for exercising influence on an equal footing precisely in order to ensure that neither has a decisive influence. [18] At the same time, it cannot be excluded that, in a situation of equal influence, more than one person knowingly implements a common economic plan with a common objective, and it is precisely this conscious cooperation which makes it safe to assume that one person can count on the other in decision-making. That is to say, a plan or objective and the cooperation within it make it possible to regard them as a single entity. [19] In order to apply Section 12(2) of the Law on Corporation Tax in accordance with its meaning, namely to identify cases where the decisive influence of a person has been the ...

In 2014, the tax authorities issued the Italien Bank a notice of assessment with which it reclaimed for taxation IRAP for 2009 part of the interest expense paid by the bank to a company incorporated under Irish law, belonging to the same group which, according to the tax authorities, it also controlled. In particular, the tax authorities noted that the spread on the bond was two points higher than the normal market spread. The Bank appealed the assessment, arguing that there was no subjective requirement, because at the time of the issue of the debenture loan it had not yet become part of the group of which the company that had subscribed to the loan belonged. It also pleaded that the assessment was unlawful because it applied a provision, Article 11(7) TUIR, provided for IRES purposes, the extension of which to IRAP purposes was provided for by Article 1(281) of Law 147/13, a provision, however, of an innovative nature, the retroactivity of which was considered to be in conflict with the Community principles of legitimate expectations and with Articles 23, 41, 42 and 53 of the Italian Constitution. Decision of the Court The Court dismissed the appeal and decided in favor of the tax authorities. Click her for English translation Click here for other translation ...