Indirect Transfers Of Profits Abroad

A French company, engaged in sale in France of a kitchen appliance for some elements of which the company or its Chairman owned the patents, entrusted manufacture of most of the parts and assembly to a Swiss company.

The French tax authorities, considering that there was a dependency between the companies and that the price billed by the Swiss company was abnormally high, included in the earnings of the French company a part considered to be excessive of the amounts paid to the Swiss company and treated as a profit transferred abroad under article 57 of the French Tax Code.

Under that article, profits indirectly transferred, by a French company dependent on or controlling firms located outside France, to a foreign company by means of an increase in sales or purchase prices, or by any other means, are recaptured in the earnings of the French company.