Proof that loans obtained through an entity benefiting from a preferential tax regime are standard
A holding company had entered into a loan agreement with a company located in the British Virgin Islands. During a tax audit of the company,administration challenged the deduction of the loan interest paid by the holding company to that company, arguing that the latter benefited from a preferential tax regime and that the holding company had failed to provide evidence that the transactions were genuine and did not appear abnormal or excessive (Art. 238 A of the General Tax Code).
The Court notes, first of all, that the holding company does not dispute that the lending company benefits from a preferential tax regime. It notes that the fact that, at the time the loan was issued, the British Virgin Islands were not considered a non-cooperative jurisdiction is irrelevant.
The Court will nevertheless find that the holding company has indeed provided evidence of the reality of the transactions and their normal nature by citing the interest rates on eleven bond issues for companies "larger than itself, and that a number of them presented a lower risk than its own, even though the rates offered by those companies, ranging from 4.21% to 6.5%, were higher than the rate on the bonds it issued in January 2013."
It also rejects theadministration argumentsadministration the rate was abnormal because it exceeded the annual average of the effective interest rates charged by credit institutions for variable-rate loans to businesses with an initial term of more than two years (i.e., the rate of 39.1, 3°) or the average bond rate applicable at the time of issuance of the bond in dispute. Indeed, the Court notes that these rates do not take into account the company’s risk profile.
The Court overturns the tax assessment in this regard but upholds other assessments.
CAA Paris, April 30, 2025, No. 23PA03179
This monitoring service is provided by Mispelon Avocat, a law firm specializing in tax compliance and litigation. You can stay updated by subscribing to the newsletter via this link.