The taxation of multinational groups is increasingly influenced by the economic analysis of intragroup transactions. In particular, the allocation of expenses, the provision of services between related entities, and the absence of adequate consideration continue to be areas of particular attention for tax authorities.
In this context, the case of France v. Société Générale, resolved in December 2025, sets an important precedent for understanding how certain intragroup practices can be challenged from a tax perspective, even when they are not formally presented as a traditional transfer pricing adjustment. Analysis of the case provides insight into the relationship between hidden distributions, withholding tax, and the arm’s length principle, offering important lessons for tax and transfer pricing management in multinational groups.
Case context and relevant facts
The litigation arose from an audit of Société Générale, in which the tax authorities questioned the tax treatment of various expenses incurred by the French parent company for the benefit of foreign subsidiaries during several fiscal years.
According to the authority’s position, these expenses:
- corresponded economically to the non-resident subsidiaries,
- were not invoiced or reimbursed,
- and did not have sufficient justification to prove the parent company’s own interest.
As a result, the administration considered that the assumption of these costs implied the granting of an economic advantage without consideration, which could be classified as a hidden distribution of profits. This classification resulted in the requirement of withholding taxes on the amounts considered to have been indirectly transferred to related entities abroad.
After a lengthy procedural process in lower administrative and judicial instances, the case was finally analyzed by the highest French administrative court, which confirmed, in substance, the validity of the approach adopted by the tax administration.
The concept of hidden distribution in intra-group transactions
From a tax perspective, hidden distribution occurs when an entity grants a third party a financial advantage that is not based on equivalent consideration or independent economic logic. In the context of multinational groups, this concept is particularly relevant when analyzing intra-group transactions involving the transfer of value without explicit remuneration.
In the case analyzed, the court held that the assumption of expenses that directly benefit foreign subsidiaries, without adequate recovery mechanisms or economic justification, constitutes an indirect form of making profits available. This interpretation reinforces the idea that, beyond the legal form of the transaction, the analysis must focus on its economic substance.
The relevance of this classification lies in the fact that it shifts the debate from a simple adjustment of the tax base to a legal recharacterization of the transaction, with more severe tax effects.
Withholding tax as a result of reclassification
One of the main implications of the case is the application of withholding tax on implicit payments abroad, derived from the classification of expenses as hidden distributions.
Unlike a conventional transfer pricing adjustment—which usually results in a correction of the local entity’s tax result—withholding tax:
- generates an immediate tax liability,
- may not be recoverable for the non-resident entity,
- and is often subject to a higher level of controversy.
The court considered that, as these were advantages granted to related non-resident entities, the withholding was appropriate, even when there was no explicit payment. This approach reinforces the idea that the absence of formal financial flows does not prevent the application of withholding tax mechanisms when an underlying transfer of value is identified.
Relationship with transfer pricing and the arm’s length principle
Allocation of expenses and economic rationality
The analysis developed in the case is closely linked to the principles governing transfer pricing, in particular the correct allocation of expenses and benefits within a multinational group.
From an arm’s length perspective, it is essential to assess whether an independent company would have assumed certain costs for the benefit of another entity without receiving adequate compensation. This reasoning, implicit in the court decision, is consistent with the international standards established by the OECD for the evaluation of intragroup services and cost-sharing agreements.
The absence of clear mechanisms for allocating and remunerating the disputed expenses was a determining factor in supporting the tax administration’s position.
Intragroup services and expectation of remuneration
In the area of transfer pricing, intragroup services must meet certain fundamental criteria:
- effective existence of the service,
- identifiable benefit to the recipient,
- and remuneration consistent with market conditions.
The case shows that, when these elements are not properly documented, the administration may consider that the transaction lacks sufficient economic substance. In such circumstances, the debate shifts from determining the arm’s length price to the very nature of the transaction and its tax treatment.
Reclassification as a response to weaknesses in transfer pricing policy
A particularly relevant aspect is that the tax authority opted for a legal reclassification rather than a technical transfer pricing adjustment. This approach shows that, in the absence of a solid and documented intra-group policy, the authorities can resort to alternative tax tools to protect the tax base.
From a practical perspective, the case demonstrates that the absence of an adequate transfer pricing policy not only exposes companies to arm’s length adjustments, but can also lead to broader tax consequences, including the application of concepts such as hidden distribution.
Practical implications for multinational groups
The precedent analyzed offers clear lessons for tax and transfer pricing management in business groups:
- The centralization of functions and expenses must be accompanied by consistent and documented allocation criteria.
- The provision of intragroup services requires contracts, job descriptions, and economic justification.
- The lack of remuneration or reimbursement must be exceptional and fully justified.
- Transfer pricing documentation plays a key role not only in technical adjustments but also as a defense tool against tax reassessments.
Conclusions
The Société Générale case highlights that the tax analysis of intra-group transactions goes beyond the strictly formal sphere and increasingly focuses on their economic substance. The correct application of the arm’s length principle is essential to prevent certain practices from being challenged under more impactful tax provisions.
In this regard, the case confirms that a robust transfer pricing policy, properly implemented and documented, not only contributes to regulatory compliance but is also a key element in mitigating risks against possible reclassifications and significant tax contingencies.
Expert transfer pricing support for business groups
At TPC Group, we are a company specializing in transfer pricing that advises national and multinational groups on the design, implementation, and documentation of intra-group policies aligned with the arm’s length principle. Our approach combines technical analysis, regulatory knowledge, and practical experience to mitigate tax risks, strengthen compliance, and provide strategic support in the event of tax audits.
Source: TPCases