France vs SAS Roger Vivier: CASE SUMMARY
Case Information
- Court: Cour Administrative d’Appel de Paris, 9th Chamber
- Case Number: 23PA01130
- Applicant: SAS Roger Vivier Paris
- Defendant: French Ministry for the Economy, Finance, and Industrial and Digital Sovereignty
- Judgment Date: 13 December 2024
- Download the FULL JUDGMENT
Judgment Summary
The Cour Administrative d’Appel de Paris upheld significant portions of the tax adjustments imposed on SAS Roger Vivier Paris (RVP) for the years 2012–2014. The French tax authorities argued that RVP, as part of a group involving foreign parent entities and related companies, engaged in practices leading to profit transfers inconsistent with the arm’s length principleThe Arm’s Length Principle (ALP) is a cornerstone concept in international taxation and transfer pricing. It requires that transactions between related parties, such as subsidiaries or affiliates within a multinational enterprise (MNE), mirror those that would occur between independent entities under similar circumstances. This principle ensures that each entity within an MNE is compensated fairly and transparently, based on the... More as outlined in Article 57 of the French General Tax Code. The adjustments addressed insufficient re-invoicing for brand promotion expenses, failure to apply appropriate margins, and substantial discounts on unsold inventory returned to its supplier, Tod’s.
The tax authorities applied the transactional net margin method (TNMM)The Transactional Net Margin Method (TNMM) is one of the five primary transfer pricing methods recognised under the OECD Transfer Pricing Guidelines. TNMM is applied to evaluate whether the conditions of a controlled transaction between associated enterprises are at arm’s length. Unlike traditional transaction methods, which directly compare prices or gross margins, TNMM compares the net profit margin relative to... More, referencing 43 comparable independent companies operating in the luxury distribution sector, and determined that RVP’s profit margins were significantly below arm’s length benchmarks. The authorities rejected RVP’s arguments that its practices, such as a 65% discount on unsold goods and limited re-invoicing for promotional costs, reflected industry norms or market conditions. RVP’s reliance on alternative tax provisions and interpretations from the French tax code was also dismissed.
Key findings included:
- The existence of indirect transfers of profits through pricing and operational decisions.
- Dependence relationships among RVP and its related entities in Portugal, Luxembourg, and Italy.
- Use of flawed methodologies by RVP, as no comparable data or adjustments were presented to counter the tax authorities’ analysis.
Penalties of 40% were upheld for deliberate non-compliance, with the court noting that RVP’s lack of transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... More documentation and repeated underreporting indicated intentional tax evasionTax Evasion refers to illegal activities or practices undertaken by individuals or businesses to avoid paying taxes. It involves intentionally misrepresenting or concealing income, inflating deductions, or underreporting earnings to reduce tax liability unlawfully. Unlike tax avoidance, which uses legal methods to minimize tax obligations, tax evasion is a criminal offence that carries significant penalties, including fines, imprisonment, and asset... More.
The court also addressed procedural objections raised by RVP, including the handling of tax loss carryforwards and the choice of comparables, concluding that the authorities acted within the scope of the law.
This judgment has far-reaching implications for multinationals operating in France, particularly those in the luxury sector. It reinforces the importance of comprehensive transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... More documentation, adherence to the arm’s length principleThe Arm’s Length Principle (ALP) is a cornerstone concept in international taxation and transfer pricing. It requires that transactions between related parties, such as subsidiaries or affiliates within a multinational enterprise (MNE), mirror those that would occur between independent entities under similar circumstances. This principle ensures that each entity within an MNE is compensated fairly and transparently, based on the... More, and proactive engagement in risk management processes.
