SARL Electro Brest had deducted a loss in its taxable income as a result of a debt waiver grranted to a related party. Following an audit the tax authorities disallowed the deduction which they found to be an abnormal act of management and not in compliance with arm’s length principle contained in Article 57 of the General Tax Code. SARL Electro Brest applied to the Administrative Court for a discharge, but in December 2022, the Administrative Court dismissed its application. An appeal was then filed by SARL Electro Brest with the CAA. Judgement of the Administrative Court of Appeal The CAA upheld the assessment of the tax authorities and dismissed the appeal of SARL Electro Brest. Excerpt “5. On the one hand, it is clear from the investigation that SARL Electro Brest holds the entire capital of its subsidiary, but has no commercial relations with it. Although the two companies use some of the same suppliers, they do not have any customers in common. However, the applicant company argues that the debt waiver granted is of a commercial nature on the grounds that a default in payments by its German subsidiary, or even its receivership, would expose it to the risk of severing its commercial relations with its suppliers and in particular Siemens AG. However, neither the alleged default by this subsidiary in the absence of aid, nor the existence of a risk of deterioration in commercial relations with the suppliers of SARL Electro Brest are established by the documents in the file, while it is clear from the investigation that at the date of the assignment of the claim, the main common supplier of the applicant and its subsidiary represented only 11.5% and 9.8% respectively of their respective turnover. It is also clear from the terms of the agreement of 31 March 2017 that the debt waiver was motivated by financial considerations relating to SARL Electro Brest’s desire to balance its subsidiary’s balance sheet with its customers and suppliers. Lastly, although the company alleges that the aid in dispute was granted with regard to its subsidiary’s development prospects, it has not produced any evidence to establish that, at the date on which the debt waiver was recognised, it was intended to safeguard the prospects of an increase in its own sales. In these circumstances, the tax authorities were right to consider that the debt waiver at issue did not constitute deductible commercial assistance within the meaning and for the application of the provisions of Article 39(13) of the French General Tax Code. Consequently, the department was right to reinstate the disputed debt waiver in the applicant company’s results for the purposes of determining corporation tax for the year ended 2016. 6. Secondly, SARL Electro Brest is not entitled to rely, on the basis of Article L. 80 A of the Book of Tax Procedures, on the administrative instruction BOI-BIC-BASE-50-10 relating in particular to the tax treatment of debt waivers, which cannot be regarded as containing an interpretation of tax law different from that applied above. 7. It follows from the foregoing that SARL Electro Brest has no grounds for claiming that, by the judgment under appeal, the Rennes Administrative Court wrongly refused to grant its application. As a result, its application, including its submissions seeking application of the provisions of Article L. 761-1 of the Code of Administrative Justice, must be dismissed.” Click here for English translation Click here for other translation ...