This is a new episode in the judicial war between some American multinationals and their French employees, on tax optimization fund. A hearing was held yesterday at the Nanterre tribunal de grande instance to settle a dispute between the American giant Procter & Gamble (Ariel, Mr. Clean, Pampers …) and its union representatives. The latter denounce the tax arrangements of the group on the grounds that they result in reducing the taxable profit in France and therefore the participation to which employees are entitled. This tactic has already been used by employees of Dutch publisher Wolters Kluwer and US computer scientist Xerox. But for the moment, it has not been successful.
As revealed The echoes, the works council of the Procter & Gamble factory in Amiens – the first of the group in Europe (1,000 employees) – joined by the unions, assigned his employer in civil in November 2017. Defended by the lawyer Roland Zerah , employee representatives dispute the calculation of P & G's “transfer prices”. These are the rates at which the benefits are invoiced between the various companies in the group, which determine in fine the profit level of each subsidiary.
In France, the American group owns several companies through a French holding company: two operate the factories of Amiens and Blois and are considered as “shapers”; another, Procter & Gamble France, designated as “commissionnaire”, is responsible for distributing the products to supermarkets and consumers. In 2018, this subsidiary generated 1.4 billion euros in revenue but generated less than 15 million net income.
“Offshored” profits in Switzerland
The majority of the margin is, in fact, “relocated” within the Swiss company Procter & Gamble International Operations (PGIO), based in the canton of Geneva, where the corporate tax caps under 19%, against 33.33% in France. PGIO does not have any direct capital ties with the French subsidiaries, but acts as a principal. It sets the margin level for French companies after reimbursing them all or part of the operating expenses: 15% of the production price for “manufacturers” and 2% of the selling price for the “commissionaire”.
This level is considered derisory by employee representatives. “Do the contracts between PGIO and the French companies really reflect market prices?” Questions Roland Zerah The margin granted to French companies is far from representing the added value they bring. He asks therefore the court to appoint an expert to recalculate the transfer prices, the taxable profit and therefore the participation due to employees. The stake could exceed 100 million euros. He points out, in passing, that the P & G leaders have refused to “compensate” their tax practices by adopting another formula for participation, as the law allows them to do. A solution put in place by some bosses of subsidiaries of large groups.
In front of him, the lawyers of P & G denounce “approximations”, “errors of law and fact” and “cartoons”. They ensure that most of the value creation is done by PGIO. “It is a company 'entrepreneur' that performs all the strategic functions, plans production, develops marketing policy and holds the rights to exploit brands, “says Vincent Delage, Francis Lefebvre's cabinet.A role much exaggerated according to representatives of the employees, who point out, in particular, that advertising expenditure is largely assumed by the French subsidiary.
The key role of Deloitte
In support of their demonstration, P & G's lawyers recall that the transfer pricing policy was the subject of prior agreements with nine European tax administrations, including those of Switzerland and France. In the case of France, the agreement was renewed in 2010 and 2014. “Procter & Gamble would have organized, with the complicity of the French and Swiss tax authorities, a fraud to the detriment of the state,” ironically Vincent Delage.
Above all, it highlights two favorable decisions of the Court of Cassation of February and June 2018, in previous cases Wolters Kluwer and Xerox. While the unions had won at first instance and on appeal, the court had finally invalidated the proceedings on a rather technical point. It considers that the amount of the net profit can not be called into question in the context of a litigation related to the participation, since it has been validated by an auditor.
“A fraud can not be covered by a certificate of an auditor”, plague Roland Zerah, who disputes the sincerity of the firm Deloitte, the auditor of P & G. “There is no element in the record to support this presumption of insincerity,” argues Vincent Delage. The lawyer defends the seriousness of Deloitte, although the latter was pinned, as the other firms'Big Four', for his very “aggressive” advice on tax optimization, especially in the LuxLeaks scandal in Luxembourg. Be that as it may, the jurisprudence of the Court of Cassation is likely to be a difficult obstacle for employees. The decision of the TGI Nanterre is expected for January 14.