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Decision of the French Conseil d’Etat (French Supreme Administrative Court) in Sacla SA v. Ministre

Sacla SA, a French Company, sold a set of brands for EUR 90,000 to its wholly-owned subsidiary in Luxembourg. The French tax authorities (FTA) alleged that the value of brands sold was actually EUR 21 million. Furthermore, the tax rate in Luxembourg being substantially (50%) lower as compared to France, did not require the authorities to establish a notion of control (dependency) between the two entities (as mandated under Section 57 of the French Tax Code; to not be established in case of “abnormal” advantages).

Upon adjudication, the case reached the Administrative Court of Appeals of Lyon, wherein the assessee accepted the undervaluation of the brand and accepted to correct the same. However, it did not accept the FTA’s valuation. Based on an expert’s report, the Court ruled the value of the brand at approx. EUR 5.89 million. The Court also imposed a 40% penalty on Sacla. Pertinently, the Court outrightly ignored the weighting proposed by the expert between the historical cost-based method (which in this case indicated a much lower valuation) and discounted cash flow (DCF) method, and only considered the DCF method. The DCF method had allowed the authorities to obtain a value eight times higher than the one derived using the historical cost-based method.

In its appeal before the French Supreme Administrative Court, the assessee contended that the Court of Appeal had distorted the expert opinion and that it did not give sufficient reasons for its finding. In its judgment, the Supreme Court quashed the lower court’s decision for distortion and insufficient reasoning. Whereas it observed that the DCF method was the most accurate, however, it did not explain why the DCF method is most relevant. Thus, staying away from a complex valuation issue, the guidelines of which are quite limited. The Supreme Court also did not make it clear whether the issue of weighting or the issue of opting for another method is to be reconsidered in remand.


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