CAA of LYON, 5th Chamber, 19/08/2021, 17LY04170, Unpublished in the Recueil Lebon
CAA of LYON - 5th Chamber
- N° 17LY04170
- Unpublished in the recueil Lebon
Reading of Thursday 19 August 2021
President
MR. BOURRACHOT
Rapporteur
Ms Cécile COTTIER
Public Reporter
MR VALLECCHIA
Lawyer(s)
SELARL ACC
Full text
FRENCH REPUBLIC
IN THE NAME OF THE FRENCH PEOPLE
Having regard to the following procedure:
Previous litigation procedure
SA SACLA asked the Lyon Administrative Court :
1°) to discharge the additional corporate tax and social security
contributions to which it was subject for the financial year ended 31 December
2008, as well as the corresponding penalties
2°) to benefit from the suspension of payment concerning the penalties;
3°) to charge to the State the sum of 74,304 euros corresponding to the
expert's fees incurred by it;
4°) to charge the State the sum of 87,356 euros pursuant to Article L.
761-1 of the Administrative Justice Code.
By judgment no. 1409753 of 10 October 2017, the Lyon administrative
court ruled that there was no need to adjudicate on the claims for suspension
of payment submitted by this company in its Article 1, reduced by EUR 2,554,652
the tax base of SA SACLA for corporate income tax and social security
contributions for the financial year ended in 2008 in Article 2, and in Article
3 discharged SA SACLA from the additional corporate income tax and social
security contributions to which it was subject for the financial year ended in
2008, and from the related penalties up to the amount of the reduction
corresponding to the reduction of the tax base defined in Article 2. The
administrative court rejected the remainder of SACLA's claims.
Procedure before the court
In a ruling No. 17LY04170 of 13 February 2020, the Lyon Administrative
Court of Appeal, after dismissing the plea of irregularity in the judgment,
decided that, before ruling on SA SACLA's request, an expert would carry out an
assessment to determine whether the sale price of the trademarks sold by SA
SACLA corresponds to their value, taking into account the exemption from
payment of royalties for a period of five years granted by Involvex
to SA SACLA. The Court also ruled that the expert would carry out his mission
under the conditions provided for by Articles R. 621-2 to R. 621-14 of the Code
of Administrative Justice and by Articles R. 200-9 to R. 200-12 of the Book of
Tax Procedures and R. 207-1 of the same book and that all rights and arguments
of the parties not expressly ruled on by this judgment would be reserved until
the end of the proceedings.
The expert report by Mr C..., assisted by Mr D..., expert witness, was filed on 8 April 2021.
By a memorandum registered on May 15, 2021, SA SACLA asked the court,
after expert appraisal, to reform the contested judgment and limited the scope
of its initial conclusions, with regard to the rights, by considering that the
value of the transferred trademarks should be set at a sum of between 1.3 and
2.1 million euros excluding taxes and persisted in its conclusions seeking
total discharge of the penalties for deliberate breach.
SA SACLA also maintains that
- the expert appraisal operations are vitiated by irregularities ;
- it contests the position of the tax authorities and the expert report
since doubts remain as to the notion of burden of proof, legal rules that
should have been applied were not, in particular transfer pricing rules, rules
on abnormal management acts and the notion of independence of tax
personalities, and that the turnover achieved by Europrotection
cannot be used as a basis for calculating the value of the trademarks
transferred that these legal rules, in particular the precise analysis of the
origin of the rate of surplus profit, are also professional rules in the field
of trademark valuation, that the Expert therefore had to apply them without
hiding behind the notion of legal rule, that it demonstrates that the
applicable rate of surplus profit must be reduced, the analysis of the status
of the Europrotection company, which should lead to
the rejection of the existence of the linked trademark, does not refer to any
existing legal concept, that this analysis serves as a basis for rejecting
documents that are very demonstrative of the real importance of the
non-transferred trademarks and in particular of the historical names of the two
companies in the group, that the role of the historical trademark SACLA is
simply ignored, that the expert has rejected without valid reason the documents
that demonstrate the respective role of the trademarks, that the analysis of
the allocation of turnover by trademark is distorted by all of these biases,
that there is no valid reason to treat shoes and gloves differently that the
allocation of turnover to shoes was validated by the administrative court, that
in view of these findings the Company maintains the conclusions of the
valuation carried out on its behalf by the expert Edouard Chastenet,
a recognised expert in the particular field of brand valuation, that the amount
resulting from this valuation is very close to that determined by the
administrative court after restatement of corporate tax and the discount for
royalty exemption, these two corrections being validated by the Expert;
- This exercise clearly demonstrates the extreme difficulty involved in
valuing intangible assets, and for this reason it reiterates its request for
remission of the penalty for deliberate failure to comply, this difficulty
being demonstrated by the drastic reduction in the amounts adjusted since the
initial notification and by the very hesitations of the Expert, who himself
determined two distant values in a short space of time.
By an order of 18 May 2021, the investigation was closed on 16 June 2021
at 4.30 pm.
Having regard to the other documents in the file.
Having regard to :
- the general tax code and the book of tax procedures;
- the code of administrative justice.
The parties were duly notified of the day of the hearing.
Were heard during the public hearing:
- the report of Mr Bourrachot,
president,
- and the conclusions of Mr. Vallecchia,
public rapporteur.
Considering the following:
1. SA SACLA, which trades in protective clothing and footwear, as well
as small equipment, was the subject of an accounting audit covering the
financial years ending 31 December 2007, 2008 and 2009. In a proposed
adjustment dated 9 December 2011, the tax authorities increased its result, on
the basis of Article 57 of the General Tax Code, by considering that SACLA, by
selling, on 19 October 2008, a set of brands held by it for EUR 90,000
excluding tax to a Luxembourg company, Involvex,
which benefited from a preferential tax regime, had carried out an indirect
transfer of profits in the context of a reduction in the selling price. After
various exchanges, in particular with the departmental interlocutor and the
opinion of the national turnover commission, the department rejected the claims
of 28 April 2014 and 17 July 2014 by letter of 20 October 2014 and set the
price of this transfer of trademarks to Involvex at
EUR 11,288,000 excluding tax.
2. SA SACLA asked the Lyon Administrative Court to discharge the
additional corporate tax and social security contributions and the
corresponding penalties resulting from the rectification concerning the
transfer of trademarks. The Lyon Administrative Court, in a judgment dated 10
October 2017, partially granted this request by ruling that there was no need
to adjudicate on the claims for suspension of payment submitted by this company
(Article 1ee), reduced by EUR 2,554,652 (excluding tax) the tax base of SA
SACLA for corporate income tax and social security contributions for the 2008
financial year (Article 2) and relieved SA SACLA of the additional corporate
income tax and social security contributions for the 2008 financial year, and
of the related penalties up to the amount of the reduction corresponding to the
reduction of the tax base defined in Article 2 (Article 3). The administrative
court rejected the rest of SA SACLA's claims.
3. SA SACLA asked the Lyon Administrative Court of Appeal to annul the
judgment of 10 October 2017 insofar as it limited the reduction of the tax base
to EUR 2,554,652 excluding tax for calculating corporation tax and the social
security contribution for the financial year ending in 2008 and to discharge
the contested taxes, i.e. EUR 2,743,449 excluding tax in principal, and to
annul the corresponding surcharges and default interest, i.e. EUR 351,161 in
default interest and EUR 1,097,380 in surcharge.
4. By judgment No. 17LY04170, the Lyon Administrative Court of Appeal,
after dismissing the plea of irregularity in the judgment, decided that, before
ruling on SA SACLA's application, an expert would carry out an assessment to
determine whether the sale price of the trademarks sold by SA SACLA
corresponded to their value, taking into consideration the exemption from
payment of royalties for a period of five years granted by Involvex
to SA SACLA.
5. The expert report was filed on 8 April 2021.
6. On the regularity of the appraisal operations :
7. Under the terms of Article R. 621-9 of the Code of Administrative
Justice: "Two copies of the report are filed with the clerk's office.
Copies are notified by the expert to the interested parties. With their
agreement, this notification may be made in electronic form. The registry may
ask the expert to file his report in digital form. The notification of the
report to the parties is then carried out by the court registry. The parties
are invited by the court registry to provide their observations within one
month; an extension of time may be granted. ".
8. If the applicant maintains that the expert opinion is irregular
because the expert examiner did not countersign the expert report, no text,
principle or rule of the litigation procedure requires such a countersignature.
The expert report is therefore not vitiated by any irregularity. In addition,
the plea must be rejected as lacking in fact, as the page of the expert report
containing the countersignature of the expert was communicated to the parties
on 14 June 2021.
9. Under the terms of Article R. 621-7 of the Code of Administrative
Justice: "The parties are notified by the expert(s) of the days and times
on which the expert assessment will be carried out; this notice is sent to them
at least four days in advance, by registered letter. The observations made by
the parties in the course of the operations are recorded in the report. ".
Under the terms of Article R. 621-7-1 of the same code: "The parties must
hand over to the expert without delay all documents that the latter considers
necessary to carry out his mission. If the parties fail to do so, the expert
shall inform the president of the court who, after having requested written
observations from the recalcitrant party, may order the production of the
documents, if necessary under penalty, authorise the
expert to dispense with them, or to file his report as is. The president may
also examine the problems posed by this failure to produce documents at the
meeting provided for in Article R. 621-8-1. The court shall draw the
consequences of the failure to communicate documents to the expert. "
10. If the applicant maintains that the expert organised
and maintained an expert meeting on the premises of SACLA on 30 July 2020, even
though he was warned that his advisers could not be present on the spot and
that this meeting was moreover held in the presence of a representative of the
tax authorities, such a meeting, held in the presence of a representative of
the company, duly convened, had the sole purpose of collecting the documents
that the company had, up to that date, refrained from communicating to the
expert. The expert thus opportunely avoided the implementation of the procedure
provided for in Article R. 621-7-1 of the Administrative Justice Code. Under
these conditions, the adversarial nature of the expert appraisal operations was
not disregarded.
11. Under the terms of Article R. 621-2 of the Code of Administrative
Justice: "Only one expert is appointed unless the court deems it necessary
to appoint several. The president of the administrative court or the
administrative court of appeal, as the case may be, or, in the Council of
State, the president of the litigation section chooses the experts from among
the persons appearing on one of the tables drawn up pursuant to Article R.
221-9. He may, if necessary, appoint any other person of his choice. He shall
also set the time limit within which they shall be required to file their
report at the Registry. When it appears to an expert that it is necessary to
call upon the assistance of one or more experts to enlighten him on a
particular point, he must first request the authorisation
of the president of the administrative tribunal or the administrative court of
appeal or, at the Council of State, of the president of the litigation section.
The decision is not subject to appeal. "
12. It is clear from the investigation that the expert appointed a new
consultant, not designated by the President of the Court, in the person of a
lawyer responsible for giving his opinion on the royalty rate to be used for
trademark royalties. Even though the person who gave this opinion did not take
part in the expert appraisal and did not ask for any fee, he must be regarded
as an improperly appointed expert witness. However, the effect of this
irregular participation is to render the expertise operations irregular only
insofar as they include this opinion and the parts of the expertise report
which refer to it. Consequently, this irregularity does not prevent this part
of the expert report from being retained as evidence, provided that the parties
were given the opportunity to discuss this document before and after the expert
report was submitted. Finally, it is clear from the investigation that the opinion
formulated by this person was given in the context of the implementation of the
method by capitalisation of royalties, a method which
was not adopted by the expert. In those circumstances, that irregularity did
not deprive the applicant of any guarantee and has no influence on the meaning
of the conclusions of the expert's report.
13. It follows from the foregoing that SACLA has no grounds for claiming
that the expert examination was irregular.
On the merits of the corrections :
14. In order to carry out the task entrusted to them by the Court, the
expert and his assistant first considered four methods, then abandoned the
comparables method and the method of capitalising
royalties, and finally retained only two methods, the historical costs method
and the method of discounting future flows, from which they derived a weighted
average.
15. Since the historical cost method does not allow the effect of
corporation tax to be taken into account with any certainty and leads to a
valuation almost eight times lower than the discounted cash flow method, the
former method should be rejected and only the latter retained. There is no need
for a weighting either, as the discounted cash flow method is the most
accurate.
16. The value of a trade mark at the time of its acquisition or at the
time of the granting of its rights of use, which depends on the profits which
the acquirer of the trade mark or its user can expect to make from its use,
must be assessed in the light of the prospects of profits which, at the date of
acquisition, the company could reasonably expect to make.
17. While the applicant rightly emphasises
that the interests of the group of companies of which it is a member cannot be
taken into consideration in assessing the equivalence of the consideration
granted on the transfer, such a rule does not prevent the following from being
taken into consideration in assessing the prospects of profit the turnover
achieved by Europrotection, which is wholly owned by
the shareholders of SACLA, from the sale of the various products designed and
distributed by SACLA, since it does not appear from the investigation that the
term Europrotection constitutes a trade mark distinct
from those transferred by SACLA.
18. The value of the trade marks transferred
by SACLA, initially declared by that company in the amount of EUR 90,000
excluding tax, was corrected by the tax authorities to EUR 11,288,000 excluding
tax, and was then reduced by the judgment under appeal to EUR 8,733,348
excluding tax. It follows from the investigation, in particular from the
expert's report filed on 8 April 2021, that this value, taking into account the
exemption from payment of royalties granted by the purchaser of the trademarks
in the amount of 2,400,000 euros excluding tax and after taking into account
corporate income tax, must be established at the sum of 5,897,610 euros excluding
tax. The result is a difference between the agreed price and the value of the trade marks transferred in the amount of EUR 5 807 610
excluding tax, which constitutes an advantage for the purchaser. The applicant,
who merely contests the amount of that advantage, does not invoke any interest
or consideration of such a nature as to justify such an advantage. In these
circumstances, the administration provides the proof that it is responsible for
the existence of a reduction in the price of the sale of assets and the
existence of an indirect transfer of profits abroad.
On the penalties :
19. Under the terms of Article 1729 of the General Tax Code:
"Inaccuracies or omissions found in a declaration or a document containing
the indication of elements to be retained for the assessment or liquidation of
tax as well as the restitution of a tax claim whose payment has been unduly
obtained from the State entail the application of an increase of: a. 40% in the
case of deliberate failure (...)". Under the terms of Article L. 195 A of
the Book of Tax Procedures: "In the event of a challenge to the tax
penalties applied to a taxpayer in respect of direct taxes, value added tax and
other turnover taxes, registration duties, land registration tax and stamp
duty, the burden of proof of bad faith and fraudulent manoeuvres
lies with the administration. ".
20. . In order to impose on SA Sacla increases for non-compliance on the
basis of Article 1729 of the General Tax Code, the administration relied on the
fact that the company had granted a hidden advantage to Involvex,
with which it is related, by voluntarily reducing the transfer price of its
trademarks. By arguing that SA Sacla, by declaring a
transfer value of 90,000 euros before tax, could not have been unaware that its
trademarks were under-valued and that this resulted in an under-declaration of
a significant sum, the Minister sufficiently establishes the deliberate nature
of SA Sacla's failure to comply, even though this
declarative behaviour was isolated. The fact that,
before the court, it now proposes to retain a value of EUR 503 000 excluding
tax, which is moreover sixty times higher than the transfer price, is
subsequent to the event giving rise to the increase and has no influence on the
assessment of its declaratory behaviour.
21. It follows from the foregoing that SA SACLA is only entitled to
request that its tax base for corporation tax and social security contributions
for the financial year ended in 2008 be reduced by an amount of EUR 5 390 390
excluding tax and to request that the contested judgment be amended to that
extent.
On the costs :
22. Under the terms of Article R. 761-1 of the Code of Administrative
Justice in its wording as of 28 September 2011: "The costs include the
contribution for legal aid provided for in Article 1635 bis Q of the General
Tax Code, as well as the costs of expert appraisals, investigations and any
other investigative measures whose costs are not borne by the State. / Subject
to specific provisions, they are charged to any losing party unless the
particular circumstances of the case justify that they be charged to another
party or shared between the parties. / The State may be ordered to pay the
costs. Under the terms of Article R. 207-1 of the Book of Tax Procedures:
"(...) The costs of the expert examination are borne by the party that
does not obtain satisfaction. The taxpayer who is partially successful shall
contribute to the costs in proportion to the part of his claim that has been
rejected and taking into account the state of the dispute at the beginning of
the expert assessment. ".
23. For the application of the above-mentioned provisions, the applicant
company obtained in the appeal proceedings an additional reduction in its tax
base in the amount of EUR 2,835,738 excluding tax. However, before the expert
appraisal, it requested that the value of the trademarks be set at the sum of
EUR 503,000 excluding tax, whereas the present judgment retains a value of EUR
5,897,610 excluding tax, which represents a proportion of 8.53%. Consequently,
the costs of the expert's report must be borne by him to the extent of the
inverse proportion, i.e. 91.47%, the surplus being borne by the tax
authorities.
On the costs not included in the costs :
24. There is no reason, in the circumstances of the case and pursuant to
the provisions of Article L. 761-1 of the Code of Administrative Justice, to
charge the State with the costs of the proceedings incurred by SA SACLA and not
included in the costs.
DECIDES:
Article 1: The tax base of SA Sacla for corporate
income tax and social security contributions for the financial year ending in
2008 is reduced by the sum of 5,390,390 euros excluding tax, including the
reduction in the base already granted by the Lyon Administrative Court.
Article 2: SA Sacla is discharged from the
additional corporate income tax and social security contributions to which it
was subject for the financial year ended in 2008, and from the related
penalties up to the amount of the reduction corresponding to the reduction in
the tax base defined in Article 1.
Article 3: The judgment of the Lyon Administrative Court of 10 October
2017 is reversed insofar as it is contrary to the present judgment.
Article 4: The expert fees, including the fees of Mr. C..., expert, and
the fees of Mr. D..., underwriter, by orders of the president of the court of
June 1, 2021, are charged to SA SACLA at 91.47%.
Article 5: The expert fees, including the fees of Mr. C..., expert, and
the fees of Mr. D..., underwriter, liquidated and taxed by orders of the president
of the court of June 1, 2021, are charged to the State in the amount of 8.53%.
Article 6: The remainder of the parties' submissions is rejected.
Article 7: The present judgment shall be notified to SA SACLA, to Mr.
A... C..., expert, to Mr. B... D..., expert, and to the Minister of the
Economy, Finance and Recovery.
Deliberated after the hearing of 8 July 2021, at which were seated :
Mr Bourrachot,
President of the Chamber,
Ms Dèche, President of
the Court of First Instance ;
Ms Le Frapper, First Counsellor.
Issued to the public by the court registry on 19 August 2021.
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