Loans Granted Free Of Interests

In a recent Court Case, the European Community Court of Justice (CJCE September 26, 1996, aff. 28/7/94, A/S Richard Frederiksen), stated that Article 10 of the E.C. directive 69/335 dated July 17, 1969 is not against the fact that a parent company which granted a loan without interests to one of its subsidiaries be subject to income tax on the basis of a interest fixed "a posteriori".

This Court Case is in accordance with the doctrine of the French Tax Authorities and with the precedents of the French High Court. It should be noted that the argument used by the taxpayer to challenge the reassessment was rather strange. Indeed, his argumentation was based on an E.C. Directive applicable to indirect taxes (transfer tax, registration duties ...), whereas his litigation with the Tax Authorities related only to corporate income tax which is a direct tax (and then out of the involved E.C. Directive scope).