SAS Sames Kremlin marketed its products abroad through subsidiaries or independent agents, depending on the territory. In Argentina, Brazil, India, Portugal and Russia it sold its products through subsidiaries under either a buy/sell distributor agreement or a commissionaire agreement. In Iran, Turkey and South Korea it sold the goods through independent agents to whom it paid a commission. The tax authorities considered that the commission paid to the independent agents was a CUP and determined the commission paid to the subsidiaries on that basis. The remuneration of the subsidiaries in excess of the commission (margin) paid to the independent agents was considered to be a transfer of profits abroad. SAS Sames Kremlin appealed against the assessment, arguing that the subsidiaries performed much more important functions than independent agents and that there were also significant geographical differences. The Administrative Court rejected the appeal and the case was then brought before the Administrative Court of Appeal. Judgement of the Court The Court upheld the decision of the Administrative Court and dismissed SAS Sames Kremlin’s appeal. Excerpt: “4. In order to justify the higher amount of remuneration paid to the subsidiaries of the group headed by SAS Sames Kremlin, compared with the amount paid to independent local intermediaries, SAS Sames Kremlin argued that the geographical markets in which the subsidiaries operated were fundamentally different from those in which the third-party sales agents operated, since they were highly strategic insofar as they were home to large car manufacturers, while the other markets were anecdotal. The subsidiaries responded to major invitations to tender, whereas the local sales agents were involved only in the supply of spare parts and small equipment, and the subsidiaries provided additional marketing, after-sales service, on-site assembly and testing of equipment, and assistance with the collection of debts, as evidenced by the significant human resources at their disposal. 5. Although the turnover achieved in Iran, Turkey and South Korea was generally lower than that achieved through the subsidiaries, it does not appear from the investigation that the characteristics of these markets justify the differences in the remuneration paid to the subsidiaries and to the independent intermediaries, since the turnover achieved by the subsidiaries is not systematically higher than the turnover achieved through independent sales agents. Even supposing that the composition of turnover achieved through independent sales agents is different from that achieved through subsidiaries, the latter including more sales of large equipment through tenders and fewer sales of spare parts and small equipment, which is not apparent from the investigation in the case of certain subsidiaries, it is common ground that the remuneration of independent sales agents does not take account of the nature of the products and equipment sold, since it is invariably set at 20% of turnover, and that the remuneration paid to subsidiaries is, irrespective of the nature of the products, equivalent to the amount of the discount they would have received if they had acted as a buyer-reseller. Finally, it is not apparent from the documents in the files that the services provided by the independent intermediaries are significantly less substantial than the services provided by the subsidiaries in their intermediation activity alone. The mere fact that the subsidiaries have greater material and human resources is not sufficient to presume, in the absence of documents in the file to that effect, that those resources were used in the context of the latter activity. It follows that, contrary to what is maintained, it does not follow from the investigation that the differences in remuneration between subsidiaries and intermediary agents can be explained by the different situation of those suppliers. Although the applicant company argues that the commissions paid to the subsidiaries take account of the margin which they would have made on a purchase/resale of the same product, such an argument is not such as to justify the abovementioned differences in remuneration between the economic agents belonging to the group and those outside it, since they are involved in the same intermediary activity, which is different from the purchase/resale activity. The various doctrines referred to, which are not expressly invoked on the basis of the provisions of Article L. 80 A of the Book of Tax Procedures, do not interpret the tax law differently from the above. 6. It follows that the tax authorities must be regarded as establishing, under the conditions referred to in point 3, the existence of an advantage, and were entitled to reintegrate it into the results of the French company, as the latter did not justify that this advantage would have had at least equivalent counterparts for it.” Click here for English translation Click here for other translation ...

If the controlled taxpayer is comparable to a sales agent that does not take title to goods or otherwise assume risks with respect to ownership of such goods, the commission earned by such sales agent, expressed as a percentage of the uncontrolled sales price of the goods involved, may be used as the comparable gross profit margin ...