France

Concept and Regulation in France

Transfer Pricing in France is stipulated in Article 57 of the General Tax Code (Code Général des Impôts), the Official Gazette of Public Finance No BOI-SJRES-20-20120912, No BOI-INT-DG-20-40-20120912, No BOI-BIC-BASE-80-20140218, and No BOI-BIC-BASE-80-20-20150902. This article briefly addresses the Transfer Pricing regulations in that country, which has been one of the most involved in implementing the BEPS plan recommendations.

Likewise, it was one of the first OECD member countries to introduce the Transfer Pricing regulations in 1933. The Transfer Pricing legislation in France is based on the OECD Guidelines and their principles.

Arms’ Length Principle: Definition

Article 57 of the General Tax Code states that the “Arm’s Length” principle means that the price charged between dependent companies must be the same as that two independent ones would have charged on the market.

Definition of Related Parties in France

The Official Gazette of Public Finance No. BOI-BIC-BASE-80-20-20150902 of September 2, 2015, and Article 57 of the General Tax Code do not define “dependence” but do refer to it.

Article 57 mentions that it may be de jure or de facto. In addition, it exempts tax authorities from proving the dependence or control relationship regarding profits from transfers to companies located abroad with a preferential tax regime.

Dependence de jure is established if a French company depends on a foreign company. It occurs when a foreign company holds a majority equity stake in the capital stock of a French company or an absolute majority of the voting rights. In fact, owning more than 50% of the shares is sufficient to characterize dependence or control.
De facto dependence may be contractual or result from conditions underlying transactions between the two companies.

Transfer Pricing Methods in France

There is no specific legislation or regulation related to the Transfer Pricing methods. Conversely, the French statutes consider the set forth by OECD.

The employed method must be according to the institution’s functional and risk profile. Other methods may also be employed if justified and appropriate. There is no hierarchy established in French legislation.

Conversely, the Transactional Net Margin Method or the Cost-Plus Method is preferred in practice for entities with ordinary profiles, and the Profit Split Method for entities with more complex profiles.

Comparability Criteria in France

The OECD principles recognize five essential comparability factors relating to the contractual relationships, the functions performed, the characteristics of the goods and services, the economic circumstances of the parties and the markets in which they operate, and, finally, economic strategies.

Transfer Pricing Documentation in France

According to Article L.13 AA of the French Tax Code, the required Transfer Pricing documentation applies to all French taxpayers:

With an annual business turnover, excluding taxes or gross assets on the balance sheet, equal to or exceeding EUR 400 million.
Owning at the end of the fiscal year, directly or indirectly, more than half of the capital of a corporation or the voting shares of a corporation.
With more than half of its capital or voting shares directly or indirectly belonging to a legal entity that meets the condition provided for in the previous section at the end of the fiscal year.
Belonging to a group subject to the French Tax Consolidation Regime when this has at least one legal entity meeting one of the above conditions.

Master File

According to the Decree published on June 29, 2018, which provides specifications relating to the required Transfer Pricing documentation, the Master File must contain information on the research and development activities subcontracted to unrelated parties.

It should also detail the suppliers of the main intra-group service transactions, specifically regarding employees, equipment, financial resources, and logistics.

Local Report

The Decree provides a materiality threshold of 100,000 euros per type of transaction, whether provision of services, receipt of services, sales, purchases, etc. In addition, it adds a requirement that the Local Report must identify the statutory accounts affected by intra-group transactions.

The mandatory documentation must be submitted in two parts corresponding to the Local Report and Master File with a specific format and content. It must be available in electronic format.

Penalties for Non-Compliance

The fine applicable if missing or incomplete documentation is set at a minimum amount of 10,000 euros and may reach higher figures considering the seriousness of the deficiencies identified by the Administration:

0.5% of the number of transactions with missing or incomplete documentation
5% of Transfer Pricing corrections relating to transactions with missing or incomplete documentation.

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