The French subsidiary of a foreign car manufacturer had agreed to take at its own charge the legal guarantee that normally was at the charge of its parent company (the car manufacturer). As a compensation, the parent company had granted a discount on the purchase price of the cars it delivered to its subsidiary. The French Tax Authorities have added back the difference between the cost of the guarantee that the subsidiary had taken at its own charge and the discount price granted on cars delivered by the parent company. Indeed, according to Tax Authorities, this difference constituted a transfer of profits from the French subsidiary toward its parent company, pursuant to Article 57 of the French Tax Code. However, the Court of Appeal of Nancy decided on July 6, 1995, that the proof of such transfer of profits had not been made, since the Tax Authorities had not proved that the import price conditions did not meet the arm's length principle. Indeed, the Tax Authorities had taken only two elements into account (discount/guarantee) in the importation price definition, whereas other elements have to be taken into consideration such as the date of payment, the advertising expense, the cost of certain equipment.
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