SNC Oakley Europe, a subsidiary of SAS Oakley Holding, which belonged to the American group Oakley Inc. until its takeover in 2007 by the Italian group Luxottica, carried on the business of distributing clothing, footwear, eyewear and accessories of the Oakley brand on European territory. Following the takeover SNC Oakley Europe in 2008 transferred its distribution activity on the French market to another French company, Luxottica France, and its distribution activity on the European market to companies incorporated in Ireland, Luxottica Trading and Finance and Oakley Icon, and deducted restructuring costs in an amount of EUR 15,544,267. The tax authorities qualified these costs as an advantage granted without consideration to its sister companies, constituting, on the one hand, an abnormal management act and, on the other hand, an indirect transfer of profits within the meaning of Article 57 of the General Tax Code on the grounds that its costs had not been re-invoiced to the Italian company, the head of the group, which had taken the initiative to reorganise the distribution activity. SAS Oakley Holding filed an appeal with the administrative Court which decided in favor of the tax authorities. Not satisfied with the result, an appeal was then filed with the CAA of Lyon. Judgement of the CAA The Court of appeal set aside the decision of the court of first instance and ruled in favor of SAS Oakley Holding. Excerpt “…On the basis of such considerations, and while it is up to the administration to assess whether the transactions in question correspond to acts of normal commercial management with regard solely to the company’s own interests, the administration, In such considerations, and whereas it is up to it to assess whether the transactions at issue correspond to acts of normal commercial management with regard to the company’s own interests alone, the administration, which did not have to rule on the appropriateness of SNC Oakley Europe’s choice to sell its business assets in order to retain only the activity of promoting distribution in the network of sports shops on the French market, establishes neither the existence of an abnormal act of management nor proof of the existence of a practice that falls within the provisions of Article 57 of the General Tax Code. 7. Furthermore, it appears from the investigation that, by deed dated March 19, 2008, SNC Oakley Europe sold to the Irish company Luxottica Trading and Finance Ltd the goodwill related to its distribution activity within the “optical” network on the European market, with the exception of the French market, for the sum of EUR 17,773,551.29. By deed dated April 29, 2008, it sold to the French company Luxottica France the goodwill related to its distribution activity within the “optics” network on the French market for an amount of EUR 1,222,525.59. Finally, by deed dated 30 June 2008, it sold to the Irish company Oakley Icon Ltd the goodwill related to its distribution activity within the “sports” network on the European market for the amount of 5,857,175.13 euros. The tax authorities do not dispute that these transfer prices were in line with the market price. However, the transfer of the business assets related to the activities that SNC Oakley Europe sold necessarily had as a counterpart, as it results from the transfer contracts, the assumption by this company of the costs related to the refusal of retailers, distributors and sales agents to transfer their contracts to the transferee companies as well as the costs related to the termination of the employees’ contracts, pursuant to the provisions of Article L. 122-12 of the French Labour Code, which are reproduced in the present report. 122-12 of the French Labour Code, taken over as of 1 May 2008 in Article L. 1224-1 of this code, which only requires the transfer of current employment contracts in the event of the transfer by an employer to another employer of an autonomous economic entity, retaining its identity, and whose activity is continued and taken over by the new employer. Thus, the administration cannot be considered, by the considerations related in point 6 above on the appropriateness of the restructuring, as demonstrating that the charges in dispute should not have been borne by SNC Oakley Europe. By justifying the increase by the fact that the latter did not claim any consideration or compensation “from the party that initiated the takeover and reorganisation of the business”, i.e. the Italian company Luxottica Group, it does not demonstrate either that any advantage was granted to the sister companies, the transferees of the business. 8. It follows from the foregoing that SAS Luxottica France, as successor to SAS Oakley Holding, is entitled to argue that the Grenoble Administrative Court, in the judgment under appeal, wrongly rejected its request for discharge of the additional corporate income tax assessed against it for the financial year ending in 2008 because of the reconsideration of the assumption of responsibility by SNC Oakley Europe for the costs associated with the sale of its business assets in the amount of EUR 15,544,267.” Click here for English translation Click here for other translation ...