Global Tax Alert (News from Transfer Pricing) | 26 June 2013

French National Assembly votes to render filing transfer pricing documentation with tax return compulsory for certain taxpayers

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On 25 June 2013, the French National Assembly adopted the bill nr. 1130 of 24 April 2013 (the Bill), regarding international tax regulations. Among the various measures passed, the Bill aims to strengthen the documentation requirement regarding transfer pricing obligations by amending Article L13 AA of the French Code of Fiscal Procedures (FCFP).

Although the amendment still needs to be voted on by the French Senate before returning to the French National Assembly for a second vote, past experience shows it is unlikely the Senate's vote will be contrary to the National Assembly's vote. It is therefore likely that the amendment on the French transfer pricing documentation requirement will indeed be adopted.

Under the current version of Article L13 AA, companies that satisfy any of the criteria listed below have to provide their transfer pricing documentation upon first request made by the tax inspector in the course of a tax audit:

  • Have total net sales (before taxes), or total gross assets, equal to or greater than €400 million.
  • Hold, directly or indirectly, at the closing date of the fiscal year, more than 50% of the capital or voting rights in a legal person having such turnover or gross assets.
  • Are, on the closing date of the fiscal year, more than 50% held, directly or indirectly, by such legal person.
  • Belong to a French tax consolidated group that includes at least a legal person that meets one or more of the aforementioned criteria.

Pursuant to the Bill adopted by the members of the National Assembly, companies fulfilling the above criteria would henceforth be obliged to file their transfer pricing documentation with the tax authorities along with their tax returns.

As a result, companies established in France would have to consider carefully whether they fall within the scope of Article L13 AA of the FCFP and pay significant attention to update their documentation on a regular basis. In absence of any contrary indications going forward, the new provision would enter into force as of the date of publication in the Official Journal and therefore would apply to any tax years ending from that date forward.

If a taxpayer that falls within the criteria of Article L13 AA does not file its transfer pricing documentation with its tax return, the French Tax Authorities can request (in writing) this documentation be provided upon which the taxpayer would have 30 days to fulfill this request.

However, the penalty regime in case of missing documentation, or non-exhaustive and non-comprehensive documentation has not (yet) been modified. As French tax law stands on the day of publication of this Tax Alert, a penalty up to 5% of the transfer pricing reassessment applies with a minimum of €10.000 per fiscal year audited. The question arises as to how the tax authorities could apply penalties without initiating a tax audit as they could face a lack of information to calculate the penalties. It is also unclear whether the French Tax Authorities could (and would) apply the minimum €10.000 penalty without commencing a formal tax audit to taxpayers failing to comply with Article L13 AA.

In addition to the above, it is likely that French transfer pricing regulations will be subject to further amendments when the next Finance Bill will be discussed by French Parliament.

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

Ernst & Young Société d'Avocats, Paris
  • Franck Berger
    +33 1 55 61 15 12
  • Jan Martens
    +33 1 55 61 13 20
  • Patrice Jan
    +33 1 56 61 11 10

EYG no. CM3562