In a recent decision, the Montreuil Administrative Court has confirmed the deductibility of acquisition costs incurred by an acquisition holding company prior to both the LBO operation and its own incorporation.
In this particular case, the acquisition by the buyer holding company Rexel Acquisition SCA of Rexel SA’s shares, had been preceded by consulting and assistance services on the transaction’s feasibility, which had in part been performed prior to the incorporation of Rexel Acquisition SCA, which then sought to deduct those costs.
The tax authorities challenged the deductibility of the costs incurred prior to Rexel Acquisition SCA’s formation based on the theory of the abnormal management decision, on the grounds that the disputed costs could not have been incurred in the interests of a company which did not exist at the time and that, in reality, these costs were incurred in the interests of the initial investors, since the acquisition holding company was merely a “transparent company without any real substance.”
The Montreuil Administrative Court rejected the tax authorities’ position, thereby confirming its earlier decision in Sté Bonhom SAS, ruling that the initial investors’ interests in carrying out the acquisition did not exclude the interests of the buyer holding company, Rexel Acquisition SCA, to complete the LBO.
Consequently, the Court confirmed that the fact that the consulting services preceded the buyer holding company’s formation did not suffice to demonstrate that the related costs were not incurred in its corporate interests, insofar as the feasibility studies were necessary for carrying out the project.
The Court also stated that a buyer holding company cannot be considered to be a “transparent company on the grounds that it was formed for the sole purpose of carrying out the acquisition.”