The Paris Court of Appeal has ruled that dollar-denominated bonds are not comparable to euro-denominated loans when determining the market rate for shareholder loans, a decision with potential implications for multinational corporations and intra-group financing. The ruling, issued January 16, 2026, case number 24PA02156, similarly clarified that when a shareholder loan is extended, the assessment of market rates should be based on the extension date, even if the interest rate remains unchanged.
The case stemmed from a dispute between a parent company and the French tax authorities regarding the deductibility of interest charges on a loan provided to its Luxembourg-based subsidiary, Le Trema Holding France, to finance the acquisition of Le Trema France Property, which owns an office building in Asnières-sur-Seine. The initial loan agreement was established on August 3, 2006, with a maturity date in August 2014. Subsequent amendments fixed the interest rate at 4% in December 2006 and extended the loan’s maturity to August 2019 in November 2014, retroactively effective to August 1, 2014.
French tax authorities challenged the amount of interest expense claimed as deductible for the fiscal years ending August 31, 2015, and August 31, 2016, arguing that the rate exceeded the legally permissible rate under Article 39, 1-3° of the French General Tax Code – 2.3% and 2.12% respectively. The company initially lost its appeal at the Paris Administrative Court, prompting an appeal to the Court of Appeal.
The Court of Appeal affirmed the principles established in previous jurisprudence regarding the determination of the market rate, stating that it should reflect the rate an independent financial institution would offer under comparable conditions. The court emphasized that this rate should not be based on the yield an enterprise might achieve by issuing bonds instead of securing a loan. The court also noted that companies can substantiate the market rate through various means, including comparable bank loan rates offered to similarly-rated companies in the non-financial sector.
The company presented two transfer pricing analyses conducted in 2018, utilizing the Comparable Uncontrolled Price (CUP) method to determine if the interest rate complied with the arm’s length principle. These analyses involved determining a credit rating for the company and then identifying comparable bonds issued by companies with similar ratings. Adjustments were made for currency, redemption date, and maturity to establish a range of acceptable market rates.
The tax administration argued that the credit rating should have been assessed as of the original loan date in 2006, not the 2014 extension. However, the Court of Appeal disagreed, stating that the lender’s reassessment of financial risk upon extending the loan should be considered, regardless of whether the loan was formally a renewal. This validated the company’s use of 2014 parameters for determining its credit rating.
However, the Court sided with the tax administration on the comparability of the bonds used in the analysis. It found that the majority of the bonds were denominated in US dollars, making them unsuitable comparisons for a euro-denominated loan, even with a currency swap. The court determined that the timing of the bond issuance – 2013 and early 2014 – was inappropriate given the November 2014 amendment date, and that only a single bond within the sample was truly comparable. The court concluded that this single comparable bond was insufficient to establish a reliable market rate range.
the Court of Appeal upheld the tax administration’s position, ruling that the company had not adequately justified the interest rate applied to the extended loan, given the different economic and financial context compared to the original agreement in 2006. This decision effectively disallows a portion of the interest deductions claimed by the company.
