In the context of the intragroup reorganization of a
multinational automobile manufacturer, the Conseil d'Etat
recently restated its position in favor of the freedom of choice
(CE, July 8, 2015, n°365850).
In 2000, the head of the French tax grouping (Parent) sold to its
subsidiary in charge of financial matters and inactive
participations (FinCo) the shares of an inactive subsidiary (Sub).
One year later, Sub was merged into FinCo.
Under the French tax grouping rules, the losses arising from the
sale of the Sub shares were neutralized, as was the recapture of
the depreciation provision booked by Parent in respect of the Sub
shares. The merger of Sub led to its exit from the tax grouping,
thereby giving rise to tax-deductible (against long-term gains)
The FTA attempted to challenge such reorganization under the abuse
of law theory, arguing that the combination of the sale and the
merger was purely tax-motivated as it allowed the recognition of
tax-deductible losses (whereas a mere merger of Sub into Parent
would not have given rise to such losses).
In order to defend its choice to first sell the Sub shares to FinCo
and then have FinCo absorb Sub, Parent provided two main arguments:
(i) the sale of the Sub shares allowed Parent to restore its cash
position and to prepare the financing of a pending acquisition
(thereby reducing its external debt), and (ii) the rationale of the
group holding structure was to (a) have only Parent directly hold
subsidiaries heading a business line of the group, and (b) transfer
inactive participations under the subsidiary in charge of financial
matters, i.e., FinCo.
Both the Lower Tax Court (TA Cergy-Pontoise, July 29, 2010,
n°0211303) and the administrative Court of Appeals (CAA
Versailles, November 22, 2012, n°10VE03850) ruled in favor of
The Conseil d'Etat ruled that, even though the same goals could
have been reached by Parent by merely absorbing Sub, the FTA did
not demonstrate that the reorganization was purely tax-motivated.
The Conseil d'Etat thus upheld its long-standing position under
which a given taxpayer is not required to choose the most heavily
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