Global Tax Alert | 26 July 2013

France postpones debates on anti-tax avoidance package to September 2013

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Based on parliamentary proceedings published on 24 July 2013, after a first vote by the French National Assembly and the Senate, the French Parliament postponed to September debates on a draft bill (the draft bill) against tax fraud and financial criminality.1

Although the draft bill primarily includes provisions of criminal tax law, it also amends transfer pricing legislation and more generally fueled debates around tax evasion or avoidance by multinational companies.

Two recent official reports (the reports)2 recommended a number of measures to combat tax avoidance by multinational companies. Some of these were included in the draft bill, while others may be discussed within the frame of the Finance Bills in the fall.

This Alert covers a number of proposals in the draft bill or in the reports that are of specific interest to multinational companies.

General proposals against tax avoidance

One proposal currently in the draft bill would extend the scope of the French general anti abuse rule to transactions that are “essentially” tax driven, whereas the current wording of the law refers to “exclusively” tax driven transactions.3

Another proposal in the reports would be to require taxpayers who seek to deduct interest, royalties and other remunerations paid to recipients established in a “low tax jurisdiction”4 to demonstrate that the transaction has a main purpose and effect other than transferring income to a low tax jurisdiction (under current law this is only required for payments to an entity located in a “Non Cooperative State or Territory”).5

The reports also recommend to introduce a mandatory disclosure of transactions with “substantial tax benefits” in France and to provide means for the French Tax Authorities (FTA) to access rulings granted by foreign tax authorities.

Proposals regarding hybrid mismatch arrangements

Echoing the OECD's work on hybrids and BEPS6, the reports recommend to prohibit the tax deduction in France of income exempted in another State, or the tax exemption of income deducted in another State (hybrid instruments).

The reports also recommend to introduce rules disallowing the benefit from a tax advantage in France that would result from a difference in tax treatment of a legal entity in two different States (hybrid entities). However, the reports do not provide for a precise wording for these proposals.

Proposals regarding transfer pricing

Several proposals included in the reports were included in the draft bill such as a strengthening of the transfer pricing documentation requirements and increased penalties for reassessments and filing omissions.

Another proposal of the reports, not included in the draft bill, is to shift the burden of proof to the taxpayer (i) in the case of business restructuring, (ii) for arrangements with companies located in low tax jurisdictions and (iii) for companies with a recurring loss position.


Multinational companies with operations in France will need to closely monitor debates that will take place from September to December 2013. They can expect a number of new anti avoidance provisions to be enacted by the end of the year in the field of, notably, business restructurings, transfer pricing and hybrid arrangements (some potentially with retroactive effect).


1. Draft bill # 1011, “Projet de loi relative à la lutte contre la fraude fiscale et la grande délinquance économique et financière”.

2. Notably, report #1243 from the French Assembly National's finance committee issued on 10 July 2013 and report from the General Inspection of Public Finances (“Inspection Générale des Finances”) issued on 10 June 2013.

3. Note that in the above mentioned report from the French National Assembly, the proposal was to use “principally” tax driven.

4. A “low tax jurisdiction” is a State where a company has an effective taxation lower than 50% of the tax that would have applied in France.

5. Based on a decree dated 4 April 2012, the Non Cooperative States or Territories for 2012 were the following: Botswana, Brunei, Guatemala, Marshall Islands, Montserrat, Nauru, Niue, Philippines. The list is updated annually by the French government. As of 26 July 2013 the 2013 update had not been published.

6. See the report on Base Erosion and Profit Shifting issued on 19 July 2013 and the report on Hybrid Mismatch Arrangements: Tax Policy and Compliance Issues issued on 5 March 2012.

For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP, France Tax Desk, New York
  • Frédéric Vallat
    +1 212 773 5889
  • Daniel Brandstaetter
    +1 212 773 9164
  • Martin Birée
    +1 212 773 3065

Ernst & Young LLP, Financial Services Desk, New York
  • Sarah Belin-Zerbib
    +1 212 773 9835

EYG no. CM3684