Council of State, 9th Chamber, 27/10/2022, 457695, Unpublished in the Recueil Lebon

Council of State - 9th chamber

• N° 457695
• ECLI:FR:CECHS:2022:457695.20221027
• Not published in the Recueil Lebon

Reading for Thursday, October 27, 2022

Reporter

Ms. Cécile Nissen

Public Rapporteur

Ms. Céline Guibé

Lawyer(s)

SARL CABINET BRIARD

Full text

FRENCH REPUBLIC
IN THE NAME OF THE FRENCH PEOPLE

In view of the following procedure:

The company Sacla requested the administrative court of Lyon to pronounce the discharge of 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, to benefit from the suspension of payment concerning these penalties and to charge to the State the sum of 74,304 euros corresponding to the expert fees it had incurred.

By judgment no. 1409753 of 10 October 2017, the Lyon administrative court ruled that there was no need to adjudicate on the claims for a stay of payment submitted by Sacla, granted a partial discharge of the taxes in dispute and rejected the remainder of the claim.

In a decision no. 17LY04170 of 19 August 2021, the Lyon Administrative Court of Appeal, hearing an appeal lodged by Sacla against this judgment, granted a partial discharge of the taxes in dispute and rejected the remainder of the application.

By a summary appeal, a supplementary memorandum and a new memorandum, registered on 20 October 2021 and on 20 January and 8 August 2022 at the Secretariat of the Litigation Division of the Conseil d'Etat, the company Coverguards Sales, the new name of the company Sacla, must be considered as asking the Conseil d'Etat:

1°) to annul this judgment insofar as it adversely affects it;

2°) settling the case on the merits to this extent, to allow its appeal;

3°) to charge the State with the sum of 5,000 euros under Article L. 761-1 of the Code of Administrative Justice.

In order to request the annulment of the decision it is contesting, the Coverguards Sales company maintains that the Lyon Administrative Court of Appeal :
- misinterpreted Article R. 621-9 of the Code of Administrative Justice by holding that the expert report was not vitiated by any irregularity, even though the expert had not countersigned it;
- misinterpreted Article R. 621-2 of the Code of Administrative Justice by holding that the irregular appointment of a consultant had not deprived it of any guarantee and had had no influence on the meaning of the conclusions of the expert report, whereas this irregular assistance and the absence of an adversarial debate regarding information intended to influence the content of the expert report had necessarily rendered the expert report operations irregular;
- erred in law by taking into account, even though these elements would have been submitted to the adversarial debate before it, the opinion of the irregularly appointed expert witness and the parts of the expert report which referred to it, without investigating whether these elements constituted elements of pure fact not contested by the parties or assessments corroborated by other elements in the file;
- erred in law with regard to Article 57 of the General Tax Code, by relying on the expert opinion to assert that the administration had provided the proof which it was required to provide of the existence of a reduction in the price of the sale of assets and of the existence of an indirect transfer of profits abroad, whereas the expert opinion ordered was useless and frustrating, since the court had in the file all the elements to rule and that the said expert opinion entailed a reversal of the burden of proof, which rested on the tax authorities;
- failed to give sufficient reasons for its decision by not responding to its plea that it was necessary to take account of the non-transferred trade marks - 'Sacla' and 'Euro Protection' - since they had an impact on the volume of turnover attributed to the transferred trade marks and on the assessment of the role of those trade marks in the constitution of the excess profit;
- gave insufficient reasons, misrepresented the documents in the file and erred in law by rejecting the historical cost method, by ruling that there was no need to weight the two methods used by the expert;
- gave insufficient reasons, distorted the expert's report and erred in law with regard to Article 57 of the General Tax Code in applying the method of discounting future cash flows, by retaining as the value of the trade marks a simply reduced amount of EUR 2 400 000 exclusive of tax, whereas it should have applied, under the terms of the conclusions of the expert's report, a discount fixed at 37 % of the value of the trade marks in order to take account of the five-year exemption from royalties granted to Sacla;
- gave insufficient reasons, distorted the documents in the file and erred in law with regard to Article 57 of the General Tax Code and the principles of autonomy of legal persons in tax matters by holding that, in order to assess the prospects of profit, the turnover achieved by Euro Protection, which is wholly owned by its own shareholders, could be taken into consideration, on the ground that the term 'EuroProtection' did not constitute a trade mark distinct from those which it had itself transferred;
- erred in law with regard to Article 57 of the General Tax Code, in holding that the administration provided the proof required of it of the existence of a reduction in the price of the transfer of assets and of the existence of an indirect transfer of profits abroad, whereas, on the one hand, the rate of excess profit was determined by comparing its results with those of the company Euro Protection and, on the other hand, no analysis was made of the respective conditions of exercise of the activities of the two companies


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;



After having heard in public session :

- the report of Mrs. Cécile Nissen, maître des requêtes en service extraordinaire; the conclusions of Mrs. Céline Guibé, public rapporteur

- the conclusions of Mrs. Céline Guibé, public rapporteur;

The floor having been given, after the conclusions, to SARL Cabinet Briard, lawyer for Coverguards Sales;


Considering the following:

1. it is clear from the documents in the file submitted to the trial judges that Sacla, which trades in protective clothing and footwear as well as small equipment, was the subject of an accounting audit covering the financial years ended 31 December 2007, 2008 and 2009. The tax authorities then increased its income, on the basis of Article 57 of the General Tax Code, considering that the company, by transferring on 19 October 2008 a set of trademarks held by it for an amount of 90,000 euros (excluding tax) to a Luxembourg company, Involvex, which benefited from a privileged tax regime, had carried out an indirect transfer of profits by reducing the transfer price. In a judgment dated 10 October 2017, the Lyon Administrative Court ruled that there was no need to adjudicate on the claims for suspension of payment submitted by Sacla, granted a partial discharge of the taxes at issue and rejected the remainder of the claim. The company appealed to the Court of Cassation against the judgment of 19 August 2021, insofar as it adversely affected it, by which the Lyon Administrative Court of Appeal, on appeal by the company, granted a partial discharge of the taxes at issue and rejected the remainder of the claims in the application.

2. In a judgment before the law of 13 February 2020, the Lyon Administrative Court of Appeal decided that, before ruling on the Sacla company's request, an expert appraisal would be carried out in order to determine whether the sale price of the trademarks sold by that company corresponded to their value, taking into consideration, in particular, the waiver of payment of royalties for a period of five years granted by the purchasing company, Involvex, to the Sacla company. In order to fulfil the mission entrusted to them by the court, the expert and his assistant first considered four methods, then abandoned the method of comparables and the method of capitalisation of royalties, and finally retained only two methods, the method of historical costs and the method of discounting future flows, from which they derived a weighted average. It follows from the statements in the judgment under appeal that the court, after considering that the historical cost method did not allow the effect of corporation tax to be taken into account with any certainty and led to a valuation almost eight times lower than the discounted cash flow method, rejected the former method and adopted only the latter and considered that there was no need to carry out a weighting, since, in its view, the discounted cash flow method proved to be the most accurate.

(3) It follows from the statements in the judgment under appeal that the court, after fixing the value of the trade marks transferred by Sacla at EUR 8 733 348 exclusive of tax, an amount also retained by the administrative court, intended to apply the discount recommended by the expert report of 7 April 2021 in order to take account of the exemption from payment of royalties granted for five years by the purchaser of the trade marks. In fixing the amount of that discount at EUR 2 400 000 exclusive of tax, whereas the expert report which it intended to apply estimated it, admittedly, at that amount in absolute terms, but by applying a rate of 37% to a value of the trade marks transferred estimated at EUR 6 500 000, the Court distorted that expert report and gave insufficient reasons for its judgment.

(4) It follows from the foregoing that, without needing to rule on the other grounds of appeal, Articles 3 to 6 of the contested judgment should be set aside and, in the circumstances of the case, the State should be ordered to pay the sum of EUR 3 000 to Coverguards Sales under Article L. 761-1 of the Code of Administrative Justice.



D E C I D E :
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Article 1: Articles 3 to 6 of the judgment of 19 August 2021 of the Lyon Administrative Court of Appeal are cancelled.
Article 2: The case is referred, to this extent, to the Administrative Court of Appeal of Lyon.
Article 3: The State will pay a sum of 3,000 euros to the company Coverguards Sales.
Article 4: This decision will be notified to the company Coverguards Sales and to the Minister of the Economy, Finance and Industrial and Digital Sovereignty.

Deliberated at the end of the session of October 13, 2022, with Mr. Thomas Andrieu, State Councillor, presiding; Mr. Nicolas Polge, State Councillor and Ms. Cécile Nissen, Maître des requêtes en service extraordinaire, rapporteur.
Delivered on 27 October 2022.
The President :
Signed: Mr Thomas Andrieu
The rapporteur :
Signed: Ms Cécile Nissen
The Secretary :
Signed: Ms. Wafak Salem



The Republic instructs and orders the Minister for the Economy, Finance and Industrial and Digital Sovereignty, insofar as he is concerned, or any court commissioner required to do so in respect of ordinary law proceedings against private parties, to ensure the execution of this decision.
For a true copy,
For the Secretary for Legal Affairs, by delegation :


ECLI:FR:CECHS:2022:457695.20221027