Ruling on the conditions for applying Article 209 B of the General Tax Code
A French company held a stake in a Dutch company that was a British tax resident. Following a tax audit, the tax authorities issued a tax assessment to the French company based on the Dutch company’s results, pursuant to Article 209 B of the French General Tax Code.
For the purposes of applying this section, the tax authorities will consider that the Dutch company benefited from a preferential tax regime because“the amounts […] paid [by the Dutch company to its shareholder] could not be taken into account in assessing the effective tax burden borne by the company in the United Kingdom.”
According to the Court, the tax authorities believed that:
part of the funds was paid in exchange for a participatory loan“whose interest rate of 0.5% was abnormally low.”
“The surplus, […] which was indeed paid in exchange for the transfer of losses under the UK tax consolidation regime, was significantly lower than the amounts that the [Dutch] company would normally have owed to its shareholder, in accordance with the terms of the tax burden-sharing agreement they had entered into.”
“The carried-forward losses stemmed largely from the [shareholder’s] deduction of financial expenses incurred in connection with securities repurchase agreements entered into with [another company], such transactions, although authorized in the United Kingdom, do not constitute “tax planning in accordance with French standards,” and the tax benefit generated by these transactions was passed on by [the shareholder to the Dutch company] through the setting of an abnormally low rate for the remuneration of the participatory loan.”
The Court, for its part, considers that“the amounts paid to [the shareholder] cannot be regarded as taxes to which the [Dutch] company was subject in the United Kingdom under [corporate income tax].”
The Court notes that this is independentof “whether or not an artificial arrangement was devised and implemented for tax purposes”or of“the fact that the amount of these sums is equal to the additional tax that would have been due had the losses not been carried forward.” The Court finds, in fact, that“these sums were not paid, without consideration, toadministration Britishadministration [...], and both the principle of their payment and their amount resulted solely from an agreement freely entered into between entities of the same group.”
The Court will nevertheless rule that the safeguard clause in Article 209 B applies because the transactions enabled the French company to obtain financing on“particularly favorable financial terms”and because they did not havethe “sole purpose of circumventing French tax law.”
It therefore overturns the tax assessment in this regard, as well as another one concerning borrowing rates.
CAA Paris, June 13, 2025, No. 23PA03037
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