Recently, the French Court of Appeal of Paris issued a decision in the case of France v. Ferragamo France (No. 20PA0360), in June 2022, explaining the transfer pricing (TP) rules for cross-border group companies.

The taxpayer (Ferragamo France), a French company, wholly owned by a Dutch company(Ferragamo International BV), was engaged in the distribution of leather products of their Italian parent company. Upon an audit, the French tax authority found that the taxpayer was insufficiently compensated for the costs incurred and the pricing policy of the group company, which had led to a transfer of profits for the benefit of the Italian parent company, and subjected the taxpayer to an additional corporation tax contribution.

A decision had been issued to Ferragamo France in which the French tax authorities claimed that the French subsidiary had not been adequately compensated for additional expenses and contributions to the value of the Ferragamo brand. The French subsidiary was remunerated on a gross margin basis, but had suffered losses in previous years and had indirect costs that exceeded those of the selected peers.

Accordingly, the Administrative Court decided in favour of Ferragamo and dismissed the assessment issued by the tax authorities in 2017. This decision was later upheld by the Administrative Court of Appeal.  An appeal was then filed by the tax authorities with the Supreme Court.

The Supreme Court (Conseil d’Etat) overturned the decision and remanded the case back to the Administrative Court of Appeal for further consideration.

The Administrative Court of Appeal issued a final decision in June 2022 in which the 2017 decision of the Paris Administrative Court was invalid and the tax assessment issued by the tax authorities reinstated.