The off-balance-sheet reversal of expenses not recharged to subsidiaries may sometimes result in withholding tax

A parent company had not charged its foreign subsidiaries for IT services and had therefore recognized an off-balance-sheet expense corresponding to those services.

Following a tax audit,administration the company of adjustments to its withholding tax liability, arguing that these non-reimbursed expenses constituted a hidden benefit and were therefore deemed to be distributed income.

The Conseil d'Etat rule that, despite the company’s arguments, the lack of re-invoicing had no corresponding consideration and that, even though “no financial transfer” took place between the company and its subsidiaries, there was indeed a divestment constituting distributed income.

He further notes that the company’s off-balance-sheet reclassification of expenses under the headings“expenses incurred by headquarters for foreign subsidiaries,”“staff seconded to foreign subsidiaries,” and“ITEC transfer pricing” "does not specify the nature of the benefits granted, nor the beneficiary companies, and therefore does not in itself reveal the existence of the grants made."

The Conseil d'Etat therefore Conseil d'Etat that the benefit granted by the company to its subsidiaries was of a hidden nature.

It therefore upholds the application of withholding tax under domestic law.

EC, 3rd and 8th Chambers, Dec. 3, 2025, No. 451466, unpublished

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