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Global transfer pricing guide

Transfer pricing - France

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Introduction to France transfer pricing
Transfer pricing rules
  • The French transfer pricing (TP) legislation is based on the arm’s length principle and follows the OECD Guidelines.
  • The TP rules apply to French taxpayers, including French branches of overseas companies.
  • TP year-end adjustments are permitted if duly justified and stated in an agreement but offsets between years and entities are not accepted.
  • The filing of an annual transfer pricing return and the preparation of documentation are mandatory according to certain thresholds of turnover or gross assets.
  • For larger groups (over €750 million) France has also implemented CbCR (Country by Country Reporting). Provided that certain thresholds are met.
OECD guidance
  • The French TP rules follow the OECD Guidelines. The OECD Guidelines, updated in January 2022, are mentioned in the French Tax Authorities’ (FTA) doctrine, frequently used by Courts and mainly for interpretation of the arm’s length principle.
  • The FTA has issued guidelines for SMEs and for financial intragroup transactions whose content is publicly available.
Transfer pricing methods
  • The most appropriate pricing method should be selected on a transaction by transaction basis, providing the most reliable measure of an arm’s length result in each case. The current OECD methods, namely the comparable uncontrolled price, resale price, cost plus, transactional net margin, and profit split methods are all accepted but the method used must be in line with the functional and risk profile of the entity. Other methods can also be used if justifiable and appropriate.
  • There is no set hierarchy in the French legislation. In practice, however, there is a ‘natural hierarchy’ to favor the comparable uncontrolled price method.
Transfer pricing documentation
Preparation of transfer pricing documentation
  • Pursuant to article L. 13 AA of the French Tax Procedure Code ('FTPC'), French transfer pricing documentation requirement applies to all French taxpayers (including French PE of foreign enterprise):
    • With an annual turnover, excluding tax, or gross assets on the balance sheet equal or over €400 million; or
    • That own at financial year end, directly or indirectly, more than half of a corporate entity’s capital or of a corporate entity’s voting shares (i.e. a legal entity, organization, trust company or comparable institution established or formed in France or outside of France) meeting the condition defined in a) above; or
    • With more than half of its capital or voting shares belonging directly or indirectly, at financial year end, to a corporate body meeting the condition outlined in a) above; or
    • Belonging to a group subject to the French National Tax Consolidation regime, where this group has at least one legal entity meeting one of the conditions above (i.e. a, b or c).
  • The transfer pricing documentation must be available at the outset of the tax audit.
  • For those French taxpayers that do not fall within the scope of article L. 13 AA of the FTPC, the FTA is allowed to require information regarding the transfer pricing policy applied based on article L. 13 B of the FTPC (in practice FTA may ask for a TP documentation lighter than the one stated in article L. 13 AA of the FTPC). Documentation is required under certain conditions and must be provided to FTA within 60 to 90 days.
  • In addition to the above-mentioned documentation requirement, a transfer pricing form (i.e. form 2257-SD) shall be filed electronically on an annual basis by certain French taxpayers within six months following the filing of their annual tax returns. It applies to French taxpayers with a €50 million turnover or gross assets as well as to the ones owning a subsidiary (with a stake higher than 50%) or being hold by a direct or indirect shareholders (by more than 50%) meeting such thresholds.
  • France has also introduced CbCR (Country by Country Reporting) regulations which are effective for fiscal years starting on or after 1 January 2016 for groups with consolidated revenues over €750 million and there are plans to have a Public CbCR but not yet implemented.
Master and local file
  • The French Finance Bill for 2018 has aligned the French transfer pricing documentation requirements with the main OECD BEPS Action 13 recommendations. The content of the documentation for financial year starting on or after January 1st,2018 is strengthened due to the extent of the information required (some of the French requirements sometimes go beyond the OECD recommendations).
  • The mandatory documentation must be presented in two parts corresponding to a master file and a local file with a specific format and content. This documentation must be made available in electronic format.
Some risk factors for challenge
  • Risk business models include commissionaire, toll manufacturing, limited risk distributor and contract services/ contract R&D arrangements.
  • Licensing payments to low tax jurisdictions
  • Interest rate above safe harbor rates of article 39, 1-3 of the French Tax Code (FTC)
  • Persistent losses in a “low risk” entity
  • AMP expenses concept
  • Business restructurings, or changes in TP model, can also trigger a challenge but needless to say, businesses can evolve, and if the previous TP method no longer appears the most appropriate, it should always be reviewed, rather than being ignored for the sake of maintaining consistency.
  • French entities within the scope of the mandatory documentation (L. 13 AA of the FTPC) and failing to meet their obligation in this respect are subject to a penalty, per audited year, up to the highest amount between (i) 0.5% of the amount of the transactions that have been omitted or incompletely documented or (ii) 5% of the reassessed basis in relation to those same transactions, with a minimum of €10,000 per audited year.

  • The failure to provide information in the framework of article L. 13 B of the FTPC may result in the application of a penalty of €10,000 for each audited year.

  • In the event of failure to submit the 2257-SD declaration as well as in the event of omissions and inaccuracies, the following fines are applicable:

    • Failure to subscribe within the prescribed time limits results in a fine of €150;

    • Except in cases of “force majeure”, the omissions or inaccuracies shall result in a fine of €15 per omission or inaccuracy, without the total fines being less than €60 or more than €10,000.

  • The FTA is required to report to the public prosecutor the facts examined during the tax audit when such facts triggered reassessed taxes of more than €100,000 and led to the application of certain penalties.

Economic analysis and how to demonstrate an arm’s length result
  • FTA will expect to see that a search for potential internal comparables has taken place before defaulting to an external database search for external comparables.
  • Local comparable companies are preferred when the tested party is the French entity, however European comparable companies can be accepted.
  • Where databases are used, the FTA’s guidelines refer to the interquartile range, however the use of the interquartile range should not be systematic.
  • With regards to financial transactions, special attention must be paid to the benchmarking analysis (e.g. the determination of the credit rating, use of bond comparables, etc.).
Advance Pricing Agreements (APAs), dispute avoidance and resolution
  • Advanced Pricing Agreements (APAs) are written agreements between a business and one or several tax authorities to govern the appropriate transfer pricing method for a forward-looking period.
  • France has an extremely extensive treaty network, and the Mutual Agreement Procedure (MAP) will often be available when double taxation occurs as a result of a transfer pricing adjustment.
  • There are exemptions from transfer pricing documentation and declaration rules when cross-border intra-group transactions do not reach €100,000 per type of transaction.
Related developments
Digital services tax
  • The new digital service tax (‘DST’) is a rate of 3% applied to specific types of revenue arising from digital services and applies in 2020.

  • The tax applies to the following digital services:

    • The provision of a digital interface enabling users to enter into contacts and to interact with others, particularly for the purpose of selling goods or providing services directly among such users. A list of excluded services is however provided.

    • The provision of services to advertisers or their agents that aim at placing targeted advertising messages on a digital interface based on the interface user’s data collected or generated through the use of such interface. In particular, these services could include the purchase, storage, and distribution of advertising messages, advertising control, and performance measurement, as well as services for managing and transmitting user data.

  • Only companies for which the sums received in return for these services have exceeded, the threshold of €750 million worldwide, of which €25 million is attributable to France, or those belonging to a group with the same characteristics, are liable to pay the tax the following year.

  • The economic fallout of COVID-19 is likely to have widespread impact and an increase in TP and Corporate Tax enquiries globally is expected. All MNEs should be reviewing their potential exposure to transfer pricing enquiries and updating documentation accordingly.
  • Where supply chains have been disrupted or work brought to a halt due to lockdown measures, expected profits may not eventuate. Comparable companies will often have been affected in the exact same way as multinational groups, but evidence must be gathered and documented contemporaneously.

For further information on transfer pricing in France please contact:

Pascal Luquet2.png

Pascal Luquet
T +33 1 41 16 27 41

Mickaël Duquenne2.png

Mickaël Duquenne
T +33 1 41 16 27 42


Nadia Boudaoud.png

Nadia Boudaoud
T +33 1 41 16 27 17

Caroline Lebon2.png

Caroline Lebon
T +33 1 41 16 27 44