Decision of the Paris Administrative Court of Appeal dated December 10, 2024
Yesterday, the Paris Administrative Court of Appeal issued a ruling regarding the application of the former Article 212 I b of the General Tax Code, specifically in cases where the Luxembourg company to which the interest was paid was operating at a loss.
In this case, the petitioner had justified the taxation of interest by arguing "that the rate of corporate income tax in Luxembourg, which is comparable to French corporate income tax, was 20% in 2013 and 2014 when taxable income was less than 15,000 euros and 21% when taxable income exceeded 15,000 euros. It submitted a certificate of tax residence in whichadministration Luxembourgadministration certify that Hermitage International SA “is a resident of the Grand Duchy of Luxembourg within the meaning of Article 2 of the convention between Luxembourg and France and that it is subject, without the possibility of an election and without being exempt, to corporate income tax,” as well as a certificate from its auditor stating the applicable rate and specifying that no tax exemption or deduction was applied. The applicant company has also submitted for the record the tax returns of the lending company, which show, on the one hand, that the interest received from Hermitage contributed to the formation of the accounting result and, on the other hand, that if there is no final taxation of Hermitage International SA, this is because that company itself is operating at a loss. Finally, the applicant company cites the Luxembourg tax provisions that include interest on receivables in the calculation of income."
The Court therefore finds that "administration seriously dispute that the appellant company demonstrated that it met the conditions set forth in Article 212(I)(b) of the General Tax Code and was therefore entitled to deduct the interest paid to Hermitage International SA up to the rate provided for in Article 39(1)(3) of that same code."