Analysis of the Transfer Pricing Case: France vs. SAP France


The France vs. SAP France Transfer Pricing Case (March 2024, CAA de Versailles, Case No. 22VE02242) has garnered significant attention internationally. This case highlights the complexities and contentious issues surrounding transfer pricing, particularly in the context of intra-group financial transactions. This analysis delves into the major areas of contention, the outcome, the significance for multinationals and revenue services, and the value of transfer pricing expertise. Additionally, it explores how such cases can be better managed or avoided through robust tax risk management processes.

Summary and Analysis of the Judgment

Case Information:

  • Court: Cour Administrative d’Appel de Versailles (CAA of Versailles), 3rd Chamber
  • Case No: 22VE02242
  • Applicant: SA SAP France Holding
  • Defendant: French Tax Authorities
  • Judgment Date: 28 March 2024
  • President: Ms. Besson-Ledey
  • Rapporteur: Ms. Claire Liogier
  • Public Reporter: Mr. Illouz
  • Lawyer(s): Cabinet Arsene Taxand

Judgment Summary:

Background: SA SAP France Holding contested additional corporate tax assessments and penalties imposed by the French tax authorities for the financial years 2012 and 2013. The primary dispute was about the remuneration of surplus cash made available to the parent company SAP SE under a centralized cash management agreement.

Key Issues:

  1. Centralized Cash Management Agreement:
    • SA SAP France had a cash management agreement with SAP SE where surplus cash was made available at an interest rate based on the EONIA (Euro OverNight Index Average) minus 0.15 points.
    • Due to negative interest rates in 2012 and 2013, the agreed rate was set at 0%, resulting in no remuneration for the cash provided.
  2. Tax Authorities’ Position:
    • The French tax authorities considered the lack of remuneration as an abnormal management practice and a transfer of profits. They adjusted the taxable income of SA SAP France by comparing the situation to what the company could have earned by placing the funds in financial institutions.
  3. Company’s Defense:
    • SA SAP France argued that the lack of interest resulted from the agreed calculation method and market conditions.
    • The company justified the arrangement by the benefits of immediate and unconditional financing from the central treasury, although it never utilized this option.
    • They contested the comparability of the rates used by the tax authorities, arguing that sight deposits did not exclude immediate withdrawal of funds and that the applied rates should be adjusted by the margin of the central treasury.

Court’s Findings:

  1. Transfer of Profits:
    • The court found that SA SAP France had a relationship with SAP SE as defined under Article 57 of the French General Tax Code, thus subjecting their transactions to scrutiny.
    • The court upheld the tax authorities’ position that the lack of remuneration established a presumption of profit transfer.
    • The company’s arguments regarding the security and benefits of the arrangement were not sufficient to justify the lack of remuneration.
  2. Comparability of Interest Rates:
    • The court found that the rates used by the tax authorities (0.15% to 0.18%) were reasonable and not negligible.
    • The company’s claim for a margin reduction of 0.15% was rejected, as the comparables used by the tax authorities inherently included such margins.
  3. Reduced Tax Rate on Licensing Income:
    • SA SAP France’s claim for a reduced tax rate on licensing income was rejected due to insufficient evidence that the income qualified under Article 39 terdecies of the French General Tax Code.
  4. Outcome:
    • The court dismissed the claims of SA SAP France Holding for the restoration of its overall deficit, discharge of additional tax assessments, payment of default interest, and reimbursement of legal costs.

Transfer Pricing Method Used:

Comparable Uncontrolled Price (CUP) Method:

  • The French tax authorities used a form of the CUP method by comparing the interest rate applied to the cash management agreement with the rates available for similar financial placements in the market (sight deposits).
  • The comparison aimed to establish what an independent company would have earned under similar circumstances, thus determining the arm’s length interest rate for the intra-group transaction.


The judgment upheld the tax authorities’ adjustments based on the lack of remuneration for the surplus cash provided to SAP SE, citing the CUP method to determine a comparable market rate. The court found that the benefits cited by SA SAP France Holding did not justify the absence of interest, and the provided rates were reasonable for establishing the transfer of profits. The decision emphasizes the importance of ensuring that intra-group financial arrangements are at arm’s length and properly remunerated to avoid adjustments under transfer pricing regulations.

Significance for Multinationals and Revenue Services

This judgment has profound implications for multinational enterprises (MNEs) and tax authorities worldwide:

For Multinationals:

  • Enhanced Scrutiny: MNEs must ensure that all intra-group transactions, especially those involving cash management and financing, are documented and reflect arm’s length terms.
  • Compliance Costs: The ruling may increase compliance costs as companies invest in robust transfer pricing documentation and benchmarking studies to avoid similar disputes.
  • Strategic Financial Planning: Firms might reconsider their cash management strategies to ensure they meet local transfer pricing regulations.

For Revenue Services:

  • Precedent Setting: The case sets a precedent for evaluating intra-group financial transactions, encouraging tax authorities to scrutinize such dealings closely.
  • Guidance Development: It provides a framework for developing more detailed guidelines and regulations around intra-group financing and transfer pricing.

Value of Transfer Pricing Expertise

Transfer pricing expertise is invaluable in navigating complex international tax laws and mitigating the risk of disputes. Specialists help MNEs develop compliant transfer pricing policies, prepare the necessary documentation, and defend their practices in audits and litigation.

Preventative Measures: Implementing a Proper Tax Risk Management Process

  1. Tax Steering Committee: Establishing a tax steering committee can provide strategic oversight and ensure that transfer pricing policies align with the company’s overall tax strategy. This committee should include representatives from various departments, including finance, legal, and operations.
  2. Regular Audits and Reviews: Conducting regular internal audits and reviews of transfer pricing practices can help identify potential issues before they escalate into disputes with tax authorities.
  3. Advance Pricing Agreements (APAs): Engaging in APAs with tax authorities can provide certainty regarding the transfer pricing methods applied to specific transactions, reducing the risk of future disputes.
  4. Training and Awareness: Providing training for relevant staff on transfer pricing regulations and best practices can ensure that the company remains compliant and prepared for any changes in the regulatory environment.

In Closing

The France vs. SAP France Transfer Pricing Case serves as a reminder of the complexities and challenges associated with transfer pricing. The contentious issues, controversial decision, and significant implications for MNEs underscore the importance of robust tax risk management processes. By implementing preventative measures such as a tax steering committee, regular audits, and APAs, companies can better navigate the intricate landscape of transfer pricing and mitigate the risk of disputes with tax authorities.

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