The interest rates applied to intercompany loans and advances were consistent with market conditions and supported by a transfer pricing analysis, benchmarking comparable financial transactions available in the market.

The benchmarking analysis presented by Coupole Finance was methodologically flawed, it relied on comparables that did not sufficiently reflect the specific credit profile of the borrowing affiliates and failed to account for the actual risk assumed by Coupole Finance as a lender. The rates applied were below what an independent lender would have required.

The Court upheld the Revenue's position. The benchmarking study submitted by the taxpayer was insufficient to discharge the burden of proof under Article 212, I, A of the CGI. The comparables selected did not adequately reflect the risk profile, tenor and structural features of the intra-group loans under review. The arm's length rate must be determined by reference to what an independent financial institution would have charged under objectively comparable conditions.

The interest-free nature of certain current account advances to affiliates was commercially justified because those advances were short-term and reflected the centralised treasury model of the group, where the lender entity derives benefit from the broader group liquidity management structure.

The absence of interest on intra-group advances cannot be justified by reference to group-level treasury benefits or internal management convenience. Each transaction must be assessed on its own commercial merits. An independent lender would not advance funds to a related or unrelated entity without adequate compensation, regardless of the group's internal operating model.

The Court confirmed the disallowance. The doctrine of the abnormal act of management applies where a French entity grants an advantage to a related party that it would not have extended to an independent third party in the same circumstances. Appeals to group-level convenience or structural benefit do not suffice to rebut the presumption of abnormality once the Revenue has established the absence of remuneration on the advance.

The TP Report prepared by Coupole Finance including intercompany loan agreements, a master file and a local file with a benchmarking study was sufficient to satisfy the documentary requirements under French law and to substantiate the arm's length nature of the transactions.

While the existence of a contract and formal documentation is necessary, it is not sufficient. The documentation must demonstrate, with specificity and objectivity, that the interest rates applied actually correspond to what independent parties would have agreed, having regard to the particular financial characteristics, creditworthiness, maturity, and currency of each transaction.

The Court reaffirmed that under the framework introduced by the 2024 Finance Act, transfer pricing documentation now operates as binding on the taxpayer and creates a presumption against the taxpayer where the documentation's methodology deviates from what was actually applied. Production of agreements and a formal local file alone does not discharge the burden of proof where the underlying economic analysis is insufficiently specific to the transactions at issue.

Even if some disallowance were warranted, the Revenue failed to apply the safe harbor rate provided under Article 39, 1, 3° of the CGI as the relevant benchmark, and instead substituted its own market rate without adequate legal basis rendering the assessment methodology legally defective.

The safe harbor rate under Article 39, 1, 3° CGI sets a floor below which interest deductibility is not contested, but does not preclude the Revenue from assessing whether a higher rate agreed by the parties was also at arm's length. Where the taxpayer charges a rate above the safe harbor without adequate substantiation, the Revenue is entitled to challenge the excess as a profit transfer under Article 57 CGI or Article 212 CGI.