Abnormality in Light of Market Practice

French Administrative Supreme Court (Conseil d’État) ruling of March 12, 2025 (Malakoff Paris 16):
To demonstrate an abnormal act of management of a borrowing company that refrained from providing security, the French tax authorities must establish the existence of a divergence from market practice.
This assessment is based on the terms that an independent lender would have offered to a borrower with similar creditworthiness for a loan with analogous characteristics. The decision also reaffirms the need to establish the intentional nature of such abnormal act of management, except in cases where there is a relationship of interest between the parties.
This ruling provides unprecedented clarity on the criteria for analyzing the arm’s length nature of loan terms and conditions through the lens of market practice. However, the practical application of this framework to intragroup financial relationships raises certain questions.
Read the analysis of Théophile Trancart, published in the Revue de droit fiscal on May 15, 2025.