The formal introduction of transfer pricing regulations into French legislation began in 1933. Since then, a few regulations and circulars regarding TP have been introduced, notably the implementation of EU transfer pricing documentation requirements (Amended Finance Act 2009), annual transfer pricing disclosure requirement (2013), the introduction of Country-by-Country Reporting (CbC) (2016) and expansion of transfer pricing documentation requirements (2018). This resulted in the rise of the importance of TP for the General Tax Department (Direction Générale des Finances Publiques), which led to an increased number of TP audits in the country.
Currently, the transfer pricing rules in France are governed by the General Tax Code –Article 57, which largely follows the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (The OECD TP guidelines).
Arm’s Length Principle
The arm’s length principle, based on Article 9 of the OECD Model Treaty, was first included in French law through Article 57 of the General Tax Code and served as a key tool for the French General Tax Department in handling transfer pricing cases. Article 57 stipulates that businesses with related companies abroad must set their prices as if they were dealing with independent companies (at market value). If a company artificially lowers or raises prices to shift profits to another country, the French tax authorities can adjust the taxable income to reflect a fair value. This rule also applies when the foreign entities are in low-tax or non-cooperative jurisdictions, even without a formal dependency relationship.
Related Party Definition
In transfer pricing, associated enterprises are those that depend on or control businesses outside France. Article 57 of the General Tax Code assesses “dependence”, and categorizes it as:
- Legal (de jure): When a foreign company owns over 50% of a French company’s shares or voting rights, showing control.
- Practical (de facto): When a foreign company influences a French company through contracts or decision-making authority, even indirectly.
Tax authorities don’t need to prove dependence for profit transfers to companies in low-tax or non-cooperative jurisdictions.
Transfer Pricing Methods
The methods that can be used to determine the arm’s length price in France are:
- Comparable uncontrolled price method
- Resale price method
- Cost plus method
- Transactional net margin method
- Profit split method
France does not have specific laws or regulations on transfer pricing methods; however, its administrative doctrine advises following the OECD Transfer Pricing Guidelines.
Comparability Analysis
An important part of the transfer pricing compliance is the comparability analysis. Below is a summary of the main points regarding comparability analysis in France:
A comparability analysis is required for all related-party transactions, focusing on the functions performed, risks assumed, and assets used. It involves selecting the tested party, the most suitable transfer pricing method, and, if needed, a financial indicator (for profit-based methods). French tax authorities emphasize that businesses must document this analysis and justify any differences between their prices and those used in transactions between independent companies.
French law does not provide detailed rules for comparability analysis in transfer pricing. Instead, it relies on the OECD Transfer Pricing Guidelines to apply the arm’s length principle, which ensures that prices between related parties are set as if they were independent businesses.
Although French law does not prioritize specific types of comparables, in practice, national comparables (data from similar companies operating in France) are usually preferred because they better reflect local market conditions. However, if national comparables are not available, foreign comparables can also be used without issues. This approach ensures flexibility while aiming for accurate and fair pricing evaluations.
Documentation Requirements
Documentation requirements for transfer prices in France are based on the three-wheeler method of OECD. That means multinationals have to report the following to the French tax authorities:
- Master file;
- Local file; and
- Country-by-Country (CbC) report.
Pursuant to Article 13 of the French Tax Procedure Code, transfer pricing documentation requirements are imposed on companies fulfilling any one of the following criteria:
- An annual turnover or gross assets of €400 million or greater.
- Greater than 50% ownership of the capital (and/or voting) of another company.
- Companies belonging to a group subject to French tax consolidation with at least one company satisfying the criteria above.
For companies that fall short of these thresholds, the tax administration may request companies to provide a lighter level of documentation for up to 60 to 90 days. Secondly, some French companies with a turnover of €50 million or more have to report an annual transfer pricing form.
France does not provide a specific list of transactions subject to transfer pricing rules. However, any transaction that affects a company’s net income falls under these rules, including those between a head office and its permanent establishment. The required documentation follows OECD guidelines, with a clear reference to BEPS Action 13 standards.
Country-by-Country Reporting
General Tax Code in France follows the OECD guidelines on Country-by-Country (CbC) reporting, and provisions that a French legal entity (including permanent establishments of foreign companies) must file a CbC report if it meets all of the following conditions:
- Prepares consolidated financial statements due to a legal requirement.
- Owns or controls at least one company outside France or has foreign branches.
- Has a consolidated annual turnover of at least €750 million (excluding VAT).
- Is not owned by another company in France (already subject to the same obligation) or by a foreign entity that must file a similar CbC report under its country’s law.
These MNEs must submit their CBC reports electronically using the tax forms provided by the authorities. If the documents are in a foreign language, the tax authorities can request translations into French. If a company fails to submit the required documentation or only submits part of it, the tax authorities will issue a formal notice, giving the company 30 days to provide or complete the documentation. Additional specific information may be requested during a tax audit.
Advance Pricing Agreements (APA) and Mutual Agreement Program (MAP)
France uses both APA and MAP to manage and resolve international tax disputes, in compliance with OECD guidelines and EU directives. APAs are agreements made between the taxpayer and the tax authorities, in advance, to avoid tax disputes regarding transfer pricing methodology. The authority regulating the agreements is the General Tax Department (Direction Générale des Finances Publiques), which determines how French tax law will be applied to a specific situation or transaction that has not yet occurred from a tax perspective.
French law provides three types of APAs: Unilateral, Bilateral, and Multilateral
A unilateral APA in France is an agreement between the French tax authorities and a company to establish transfer pricing methods for intra-group transactions. It provides certainty within France but doesn’t guarantee acceptance by other tax authorities. This procedure is infrequent and used when no bilateral APA exists or for simple issues or operations involving multiple countries. The agreement is not available for transactions with companies in non-treaty countries with privileged tax regimes and requires comprehensive information from the taxpayer.
The most common type of APA in France is bilateral, meaning it is an agreement between two tax authorities, approved by the taxpayer. Typically, only two countries are involved in such agreements. However, in some cases, French tax authorities may also accept multilateral APAs, which include more than two countries. Despite this flexibility, regulations mainly highlight the bilateral nature of APAs.
Mutual Agreement Procedure (MAP) is a mechanism for settling double tax disputes between the two countries not in litigations. In France, the MAP procedure seeks to correct cases in which a taxpayer is subject to double taxation on the same income, or in which a tax is levied on income in a manner contrary to the treaty. It covers citizens or companies domiciled in either of the 100+ contracting states with whom France has signed a Double Trax Treaty, ensuring compliance with BEPS Action 14. Taxpayers can request MAP within the time limits if they believe they were unfairly taxed. The French tax authority works with foreign tax offices to reach an agreement, aiming to resolve cases within 24 months. If no agreement is reached, some treaties allow for arbitration to ensure a final decision. Once settled, France ensures the solution is applied correctly.
Approach to Transfer Pricing Audits
Transfer pricing audits are common in France for multinational companies. It’s crucial to understand how tax authorities gather information to identify profit transfers and how a company can challenge the government’s findings. The tax authority can audit tax returns and review transactions to determine taxes. Tax inspectors can make adjustments, following procedural rules and ensuring taxpayer rights are respected.
Penalties
Penalties for transfer pricing violations follow general tax rules. Companies that underpay taxes face late payment interest and additional penalties based on intent.
Good Faith (No Willful Breach)
If a company acted in good faith, only late payment interest applies (0.2% per month since 2018). No penalty applies if the taxpayer disclosed uncertainties or if the undeclared income is under 5% of the adjusted amount.
Bad Faith (Willful Breach)
A 40% penalty applies if the underreporting was intentional (80% for fraud). This is in addition to late payment interest and applies only to the portion where bad faith is proven.
Tax Evasion (Fraud)
For deliberate tax evasion, criminal penalties may apply, including fines, imprisonment, and public disclosure. If the adjustment exceeds €100,000, the case must be sent to the prosecutor.
Enforcement
The statute of limitations is three years, extendable to six or ten years in some cases. While rarely applied in transfer pricing cases, enforcement is increasing.
Taxation at a Glance
France comprises 18 administrative units, including 13 urban/ metropolitan units in continental France and 5 overseas units. All five overseas regions, plus Saint-Martin (a French overseas territory in the Caribbean), are covered within the EU as outermost regions. The official name of the French tax authority is the Direction Générale des Finances Publiques (DGFiP)
The table below provides a summary of the main taxation rates related to businesses:
Tax Type | Tax Rate |
Corporate Tax | 25% |
VAT | 20% |
Withholding tax on dividends to non-residents | 25% |
Withholding tax on interest to non-residents | 0 % |
Withholding tax on royalties to non-residents | 25% |
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