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Profit Shifting - Decision of the French Conseil d’État in Case No 464928 - France vs ST Dupont

Dated 05 July 2023


ST Dupont, a French luxury goods maker, primarily owned by Dutch company D&D International and Hong Kong-based Broad Gain Investments Ltd, has its own foreign distribution subsidiaries, including ST Dupont Marketing in Hong Kong. The tax authority’s audit determined that ST Dupont's product sales to its Hong Kong subsidiary were not priced at market value, leading to tax adjustments. The audit revealed consistent losses for ST Dupont from 2003 to 2009, with losses ranging from EUR 7,260,086 to EUR 32,408,032, while its Hong Kong subsidiary was profitable with EUR 920,739 to EUR 3,828,051 for the same years. The tax administration applied a CUP method to correct ST Dupont's corporation tax declarations for the fiscal years ending 2009, 2010, and 2011.


Unhappy with the litigation outcome at the lower level, ST Dupont appealed to the Paris Court of Appeals (CAA). However, the appeal court upheld the initial court's decision, supporting the tax administration's right to reintegrate the profits of ST Dupont Marketing into ST Dupont's results. The Court held that ST Dupont could not give enough evidence to support most of its claims.


The Court also held that ST Dupont disputed the relevance of the comparable open market price method used for transfer pricing, insisting on the resale price method. The administration, however, has no obligation to exclusively use the resale price method, nor do the OECD guidelines specify that this method must be applied. ST Dupont argues that the administration has compared companies with different functional profiles, but the company does not provide sufficient evidence to validate this claim. While ST Dupont maintained that the administration failed to consider geographical market differences, the Court held that the company could not provide substantial evidence demonstrating these differences impact sales prices. ST Dupont also claims the administration has compared transactions of incomparable volumes, but fails to conclusively prove that sales prices were set according to quantities sold. ST Dupont suggested that its persistent losses and the profits of its subsidiary can be explained by a tough economic climate, but the CAA held that this does not challenge the administration's identified reality of transfer pricing.

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