Global Tax Alert (News from Transfer Pricing) | 9 January 2018

France aligns transfer pricing documentation requirements with OECD Action 13 Master File and Local File

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Executive summary

The French Finance Bill for 2018, approved by the Parliament on 21 December 2017 and published in the Journal Officiel on 31 December 2017, aligns French transfer pricing documentation requirements with the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) Action 13 recommendations (Transfer Pricing Documentation and Country-by-Country Reporting) by amending Article 13 AA of the French tax procedures code (Livre des procedures fiscales).

Specifically, the OECD’s BEPS Action 13 recommends that multinational enterprise (MNE) groups should disclose additional information in their transfer pricing reports and proposed a standardized format for the disclosure of general information on the group (Master File) and more detailed information for each taxable entity that is part of the group (Local File).

Detailed discussion

Most taxable entities are subject to the following transfer pricing-related documentation requirements in France:

  • Maintain transfer pricing documentation as required by Article L 13 AA of the French Procedural Tax Code
  • File a Transfer Pricing Statement as part of the tax return (form CERFA 2257-SD), as required by Article 223 quinquies B of the French Tax Code
  • For multinational enterprise (MNE) groups meeting the threshold of €750 million of consolidated revenue: be able to communicate the data contained in the group’s Country-by-Country Reporting (CbCR), as required by Article 223 quinquies C of the French Tax Code

Article L 13 AA in particular requires most MNE groups to disclose information in relation to the intra-group transactions of any nature that the French subsidiary (and/or branch) of that group enters into with its related parties. This transfer pricing documentation requirement has been in place for financial years starting on or after 1 January 2010, and has been applicable for companies that pass the threshold test of €400 million of gross assets on their balance sheet and/or of €400 million of net sales. The documentation obligations stipulated in Article L 13 AA also apply to French taxable entities that own, indirectly or directly, or are owned by, indirectly or directly, an entity that passes that €400 million threshold test.

For financial years beginning on or after 1 January 2018, these French entities would have to present to the French Tax Authorities transfer pricing documentation that is largely inspired by the OECD’s recommendations, now published as the new Chapter V of the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (notably Annex I and Annex II of Chapter V).

The new legislation reproduces almost “in extenso” the list of information recommended by the OECD for the Master File (Annex I to the aforementioned Chapter V) and the Local File (Annex II to the aforementioned Chapter V). As such, the following informational elements will now be required by law to be included in French transfer pricing documentation reports (non-exhaustive list):

  • The group’s organizational chart
  • A description of the supply chain of the five main goods and services offered by the group as well as any other goods and services amounting to more than 5% of the group’s turnover
  • The intangible assets
  • The intercompany financial activities of the group and its main sources of external financing
  • The group’s financial and tax positions
  • A description of the significant intra-group transactions and the conditions under which they were entered into
  • A reconciliation of the financial data used for transfer pricing purposes and the French entity’s statutory accounts

The new Article L 13 AA thus appears to limit the transfer pricing documentation requirement to the most important intra-group transactions, whereas the previous text did not include any threshold. However, it is not clear how exactly “important intra-group transactions” (transactions importantes avec des entreprises associés) should be interpreted.

However, it should be noted that there are three points of divergence between the OECD’s Chapter V and the updated French transfer pricing documentation requirements, as follows:

  • A description of the Group’s transfer pricing policies related to research and development and intangibles is not required by Article L 13 AA
  • A description of the individuals to whom local management reports and the country(ies) in which such individuals maintain their principal offices is also not required to be included in either the Master File or the Local File for French transfer pricing documentation purposes
  • Article L 13 AA omits to include information on the main competitors, included in Annex II of the OECD Transfer Pricing Guidelines’ Chapter V

The new text specifically refers to a decree that will be published (no deadline has been announced for the publication of this decree) and that might clarify certain practical implementation points. For example, it is currently unclear whether the upcoming decree would introduce a numerical threshold to clearly define the new Article L 13 AA reference to “important intra-group transactions.”


Although Article L 13 AA has been thoroughly revised and now requires companies to disclose additional information in relation to their transfer prices, the associated penalty regime has not been modified. Thus, companies that are caught by Article L 13 AA but do not meet its transfer pricing documentation requirements expose themselves to a penalty that is the greater of:

  • A minimum of €10,000 for each fiscal year concerned
  • 5% of the taxable profits deemed to have been transferred for each fiscal year
  • 0.5% of the amount that represents non-documented transactions

Although the implementation date of financial years starting on or after 1 January, 2018 leaves companies little time to adapt, the fact that the French Government has aligned itself with the OECD’s recommendations is a positive development. It should enable non-French multinationals that prepare a Master File and a Local File based on OECD principles to comply with the relevant French regulations. Also, France-based multinationals that have already started the transition of their transfer pricing reports to the OECD’s new Master File and Local File standard now have support in their decision to follow OECD guidance.

Nevertheless, the harmonization of transfer pricing documentation into an OECD-compliant Master File and Local File will require effort from MNE groups, and a temporary increase in the compliance burden could be expected for certain large multinationals.

Finally, it should be noted that the revisions to Article L 13 AA did not impact the additional transfer pricing obligations that French entities entering into intra-group transactions and/or dealings need to adhere to; namely the obligation to file a Transfer Pricing Statement as part of the tax return (Article 223 quinquies B) and the CbCR requirements (Article 223 quinquies C).

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

Ernst & Young Société d’Avocats, Paris
  • Jan Martens
  • Emmanuelle Leroy
Ernst & Young LLP, French Tax Desk, New York
  • Frédéric Vallat
  • Mathieu Pinon
  • Audrey Teurlings

EYG no. 00087-181Gbl