According to the French Supreme Court, when a subsidiary performs works on behalf of its parent company, the Tax Authorities do not establish that the fact of invoicing at a price inferior to their cost price is contrary to the arm's length principle, insofar as the Administration does not justify that this price is inferior to the market price (CE, 9e and 8e sous-sect., June 26, 1996, rec. no.80178, SARL Rougier-Hornitex).

Moreover, the Supreme Court has ruled that the Tax Authorities have to prove that when debts are transferred at a price inferior to their nominal value, this price is inferior to their fair market value (CAA Paris, April 25, 1995, req. no.89-2149: Dr. fisc. 196, no.6, comm. 135, concl. Mme D. Brin).

On the other hand, when services are rendered by a parent company to its subsidiary at a price inferior to the contractual price, the Tax Authorities bring the proof of the abnormal act of management, insofar as the parent company does not demonstrate that the contractual price did not exceed the cost of services rendered or that the inferior price was the counterpart of some other benefit the parent company receive from its subsidiary (CAA Lyon, February 1st, 1995, req. no.93-1269: Dr. fisc. 1995, no.40, comm. 1856).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be brought about your specific circumstances.

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