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Overview of the French TP regulation and documentation requirements

Philippe Drouillot and Matthieu Philippe, of LexCase Société d’Avocats, provide an update on the French TP environment.

Within French legislation for the repression of international tax evasion, article 57 of the French Tax Code (hereafter, FTC), allows the tax authorities to contest the prices and conditions practiced by companies belonging to a single group, and established in different countries.

The notion of group should be understood in the economic sense as: "companies which are under the dependence or which control companies located outside of France", as well as those "which are under the dependence of a company or a group which also controls companies outside of France".

The tax authorities should demonstrate the dependencies (in deed or in law), unless the transfer is undertaken with companies established in a "low tax" country or region, as defined under article 238 A of FTC, namely if these companies "are subject to corporation tax or income tax of which the total is lower than one half of the corporation tax or income tax for which they would have been liable under legislation in France, if they were taxable there".

Quite naturally, in the event of a tax audit, the burden of proof in demonstrating the abnormality of transfer prices falls on the French tax authorities. However, in practice, the transfer pricing documentation requirements introduced in France by the amended 2009 Finance Bill lead to reverse the burden of proof.

These requirements have been codified under articles L. 13 AA and L. 13 AB of the French Tax Procedure Code (hereafter FTPC).

Then, on January 4 2011, the French tax authorities issued guidelines on transfer prices documentation (BOI-BIC-BASE-80-10-20), and, more recently, the law against fraud and tax evasion enacted in December 2013 introduces new rules and obligations under article 223d B of the FTC.

In practice, this set of rules provides that, for certain companies:

  • a full transfer pricing documentation justifying the transfer price policy must be presented "at first demand" in case of a tax audit; and

  • a basic transfer pricing documentation must be filed annually, within six months, following the deadline for filing the annual income tax return.

Companies subject to the transfer pricing documentation requirements

The documentation requirements are applicable to all companies with annual pre-tax turnover or gross assets exceeding €400 million ($540 million), as well as all companies that are members of a tax consolidated group, insofar as one of the members is individually subject to this obligation.

Moreover, such obligation additionally concerns French subsidiaries of which the foreign parent companies – holding, whether directly or indirectly, over 50% of their capital or voting rights – exceeds this threshold abroad, as well as French companies having subsidiaries abroad exceeding this threshold (also held by over 50% of financial rights or voting rights).

As this threshold does not take into account the materiality of the intercompany transactions, the definition of the scope of these obligations is a tricky issue; notably when the shareholder is an investment company, whose gross asset value exceeds this threshold of €400 million because of the diversity of its investments, whilst the French company is an SME. The fact that this investment company simply holds shares could lead the tax authorities to consider that the SME should be subject to the documentation requirements.

Finally, it must also be noted that in a situation where the companies do not fall into the scope of article L. 13 AA and 223d B of the FTC, they will be subject to article L. 13 B of FTPC, which – whilst being a little more flexible than article L. 13 AA in terms of deadlines for response (the company must respond to the tax authorities within two to three months) – also lays down the obligation for the company, in practice, to prepare all information to justify the transfer price policy before any tax audit. In other words, in all instances, it is necessary to prepare a documentation, which will justify the transfer prices applied within the group.

Transactions concerned

In practice, the scope of the transactions concerned is extremely large, since all intra-group transactions involving the French company should be documented, insofar as these transactions are concluded with foreign entities, for instance, recurring transactions, but also exceptional transactions such as transfers of fixed assets, or business restructuring.

The full transfer pricing documentation (Article L. 13 AA of FTPC)

Documentation requirements

The documentation should include two sections:

1) General information on the group of associated companies, including:

  • a general description of all business activities, including changes occurred during each audited tax year;

  • a general description of the legal and operational structures of the group of associated companies, including the identification of the associated companies of the group involved in audited transactions;

  • a general description of the functions undertaken and risks assumed by each associated companies insofar as these affect the audited company;

  • a list of the main intangible assets held, notably patents, brands, trading names and know-how, in relation to the audited company; and

  • a general description of the transfer price policy of the group;

2) Specific information concerning the audited company:

  • a description of activities, including changes which occurred during each audited tax year;

  • a description of transactions undertaken with related entities, including the nature and total of flows, including fees;

  • a list of agreements concerning the distribution of costs as well as a copy of the prior agreements in terms of transfer prices and rulings pertaining to transfer price calculation, affecting the results of the audited company;

  • a presentation of the method(s) used to determine the transfer pricing policy in respect of the arm's-length principle, including an analysis of the functions undertaken, assets used and risks assumed as well as an explanation of the selection and application of the methods used; and

  • where the method selected requires this, an analysis of comparative elements considered as pertinent by the company.

Additionally, the new rules introduced by the French tax bill for 2014 provide that, as from January 1 2014, the French taxpayer must also include in its documentation the tax rulings granted by foreign tax authorities to any associated company.

If the French Constitutional Council (Conseil Constitutionnel) has confirmed the actual constitutionality of this new obligation, it has also indicated that the communication does not concern tax rulings that are not "in the possession" of the French taxpayers. As of today, the way the French tax authorities will apply these new rules still remains unclear.

Finally, it should also be noted that the administrative guidelines indicate that the French tax authorities are entitled to ask for a French translation of any document.

Transfer prices justification

In principle, only the analysis of the comparative elements with transactions between independent companies (arm's-length price) can justify a transfer price without any possible contestation.

Consequently, concerning certain common services such as management fees, and whilst the group would consider practicing a reasonable margin (for instance, mark-up of 5% applied to costs), it is however necessary to perform this comparative analysis. In practice, the compared transactions very rarely concern identical transactions and companies should make their best efforts to seek the most pertinent comparisons possible (certain services such as management fees are in principle intra-group services which are not found with independent third parties).

Moreover, the French administrative guidelines provide that the documentation should be based on contemporary elements, namely data available when companies set their transfer price. This requirement is particularly problematic, as the comparative data are only, by their very nature, available subsequent to the end of the tax year considered. However, in practice, the French tax authorities are quite pragmatic on this issue, and do accept to take into account the data provided (even though they are not exactly contemporary), if the taxpayer can demonstrate that they are actually relevant.


This documentation must be presented "at first demand" in case of a tax audit. French taxpayers must then anticipate such a request, and draft their documentation in a timely manner, as soon as proper information is available.


A penalty of €10,000 per financial year is handed down in the event of insufficient or incomplete documentation (then, as the standard French tax audit period is three years, the theoretical risk is €30,000). Legal texts also make provision for a fine of 5% of transferred profits, but fortunately this fine will only be applied in the most serious matters, namely if there is no documentation or if the documentation "is entirely irrelevant".

The light transfer pricing documentation (Article 223d B of the FTC)

The Law against fraud and tax evasion enacted in December 2013 introduces an additional transfer pricing documentation requirement under Article 223d B of the FTC, applicable to all French taxpayers already subject to the full documentation requirements (Article L 13 AA of FTPC): as from December 2013, the taxpayers must now spontaneously file to the tax authorities, each fiscal year, a specific documentation. It must be stressed that the filing of the light transfer pricing documentation does not replace the existing full documentation requirements, which still applies in case of tax audit.

Documentation requirements

In practice, the light transfer pricing documentation consists of some extracts of the full documentation, as it must include:

1) General information on the group of associated companies:

  • a general description of all business activities, including changes that occurred during the last fiscal year;

  • a list of the main intangible assets held, notably patents, brands, trading names and expertise, in relation with the French company; and

  • a general description of the transfer price policy of the group, including changes that occurred during the last fiscal year.

2) Specific information concerning the French company:

  • a description of all business activities, including changes that occurred during the last fiscal year;

  • a summary of the transactions undertaken with related companies, presented by transaction type and by amount, when the total amount per transaction exceeds €100,000; and

  • a presentation of the method(s) used to determine the transfer pricing policy in respect of the arm's-length principle, indicating the main method used, and including changes that occurred during the last fiscal year.

It should also be noted that, because of all filings to the French tax authorities, this light documentation should, in principle, be provided in French, except for specific agreements from tax authorities for a foreign language version (English in practice).


The light transfer pricing documentation must be filed to the tax authorities within six months following the deadline for filing their annual income tax return.

Because French taxpayers have a three-month period following the closing date of their account to submit their annual tax return (four-month period when the closing date is December 31), the light documentation should then be filed within nine months following the closing date of the accounts (or 10 months after, when the closing date is December 31 therefore at the very beginning of November).


No specific penalty has been introduced in the FTC for a breach of these provisions and then, only the standard penalty of €150 should apply.

However, these new rules will certainly be used by the tax authorities to enhance their tax audit selection process, to identify potential transfer pricing issues, but also for taxpayers unable to document them properly. Therefore, the importance of this new transfer pricing documentation requirement must be appreciated irrespective of the insignificant amount of the penalty.

Advance pricing agreements

In France, as in the vast majority of the OECD states, French and foreign companies can request that the tax authorities issue a prior agreement on the calculation method of transfer prices to be applicable during future transactions within the group (Article L. 80. B 7° of FTPC).

In practice, this procedure has rarely been used by French groups, because they often fear that a concrete agreement could be detrimental to them, given the constant changes in their organisation and processes. Finally, given the documentary obligations that now apply, one may prefer to have a well-prepared tax audit, rather than an agreement with uncertain effects.

Philippe Drouillot




Tel: +33 1 40 20 22 22

Partner of LexCase since 2009, Philippe Drouillot studied a tax law postgraduate degree at the University of Bourgogne. He started his law career in 1997 at Arthur Andersen, then he joined EY, followed Soulier Avocats. Philippe has consequently developed, in the course of his professional experiences, a specific expertise in tax assistance to French and foreign corporate groups, especially in transfer pricing matters. Moreover, Philippe is an associated lecturer on national and international taxation in business schools and universities and he is member of the International Fiscal Association (IFA).

Matthieu Philippe




Tel: +33 1 40 20 22 22

Matthieu Philippe joined the tax department of LexCase in 2010. Matthieu succeeded his post-graduation degree – Company and Business Law – DJCE – at the University of Nancy II, and has been a member of the Bar since 2009. He started his career in 2009 at EY (Paris office). His areas of practice vary from counsel to litigation for corporate taxation and individuals, both in a national or international context. Matthieu is also an associated lecturer on corporate tax law in the University of Lyon.

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