(Administrative Court of appeal of Marseille, May 19, 2015, 13MA01107, 3D Conseils)

EURL 3D Expertise ("3D Expertise"), a French company, carried out a certified accountancy activity through two establishments in France.  Further to an insolvency procedure, the company stopped operating one of the two establishments.  Simultaneously, its sole shareholder created another company, EURL 3D Conseils ("3D Conseils" or the "Company"), to take over the activity of the closed establishment as of October 1, 2006.

The French tax administration (the "FTA") considered that 3D Conseils' take over constituted a transfer of clientele without compensation.  According to the FTA, 3D Conseils, which benefitted from the transfer, should have booked the transferred clientele at fair market value in its accounts.  In the absence of any financial consideration, such transfer would constitute a taxable exceptional income.  Therefore, the FTA reassessed 3D Conseils of an amount equal to the clientele's fair market value by reference to comparable transfers performed with financial consideration.

Disputing the FTA's position, 3D Conseils initiated proceedings before the lower administrative Court of Marseille.  As the latter ruled in favor of the FTA, the Company lodged an appeal before the administrative Court of appeal of Marseille.  The Company argued that there had been no gift granted because, on November 27, 2008, it had concluded with 3D Expertise a free loan-for-use agreement covering the clientele with retroactive effect as of January 1, 2006.

The administrative Court of appeal ruled in favor of the FTA, considering that the conclusion, subsequently to the disputed facts (i.e., the end of fiscal year 2006), between 3D Expertise and 3D Conseils, of a loan-for-use agreement[1] related to the clientele could not justify the failure for 3D Conseils to book this intangible as an asset in its accounts.  As the case was not brought before the French supreme administration Court, this decision is now final.

In practice, in the case of a gift, the FTA most often reassesses the company that has granted the gift on the grounds of the abnormal act of management concept or the transfer pricing rules, and consider the gift as a deemed dividend.  In the case at hand, the FTA reassessed the beneficiary company.  It is worth mentioning that the company that granted the gift was placed in an insolvency procedure.  This being said, this decision could have a broader impact in the case, for example, of a free transfer by a foreign company to a French company.