Mandatory Transfer pricing documentation requirements introduce into French tax law
A new Transfer Pricing (TP) documentation requirement, codified as Article L.13AA LPF, was enacted on 30 December 2009. The new legislation requires transfer pricing documentation to be prepared and made available to French Tax Authorities (FTA) on the first day of a Tax audit.
The new French legal transfer pricing documentation requirements apply to all financial years (FY) beginning on or after January 1st 2010. Taxpayers subject to French mandatory Transfer Pricing (TP) documentation requirements
The French mandatory TP documentation requirements apply to entities established in France falling under one of the following alternative criteria: - entities with a turnover or gross assets on the balance sheet over €400 million, or - which hold directly or indirectly more than 50% of share capital or voting rights of an entity stated under point a), or - where share capital or voting rights are directly or indirectly held by an entity stated under point a), or - which are part of a French Tax Consolidation group, where there is at least one entity stated under point a), or - which benefit from a ruling granting a Worldwide Tax Consolidation regime.
Required documentation The required documentation must include two sets of information as recommended by the EU Code of Conduct of the Joint Transfer Pricing Forum:
General information on associated companies: Under this section, taxpayers must provide sufficient information in order to allow FTA to understand the economic, legal, financial, and tax environment of the group for the period under audit. Specifically, the documentation must include: a general description of the group's activities and business strategy ; a general description of the legal and organizational structure of the group and the related parties, including the identity of those legal entities engaged in a related-party transaction ; a general description of the functions performed and risks borne by the associated companies to the extent that they affect the audited company ; a list of the principal intangible assets (patents, brand names, trademarks, know-how) which affect the audited company ; a general description of the group's transfer pricing policy.
Specific information on the audited company Taxpayers must provide sufficient information in order to allow French Tax Authorities to determine whether the business's transfer pricing are in compliance with the arm's length principle for the period under audit. Specifically, the documentation must include: a description of its activities and business strategy, information on operations carried-out with related parties, description of the transfer pricing policy with an explanation on the selection and application of the retained methodology, a list of cost-sharing agreements, a copy of any agreements or rulings (including APA agreements). In addition to the above mentioned requirements, specific documentation requirements were introduced with regard to operations realised by French companies with an associated entity located in a "Non-Cooperative State or Territory". In such case, a balance sheet and profit and loss statement in compliance with Article 209 B, IV of each associated entities must also be included.
Consequences of non compliance Under the new rules, French entities are required to submit to the FTA with a fully compliant transfer pricing documentation on the first day of the tax audit. However, when the documentation is deemed incomplete or is not provided to the FTA, the Tax Authorities file a request that such documentation be produced or be completed within 30 days. Failure to provide a fully compliant TP documentation within the 30-day extension period is subject to a penalty, per audit period, of €10,000 or, up to 5 % of the gross amount of reassessed tax liability.
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Said "entities" are thus subject to new TP documentation requirements, irrespective of whether the business is run in the form of a company or permanent establishment. For the purpose of the new French legislation, a "Non-Cooperative State or Territory" is (1) not a EU State, and (2) which is reviewed and monitored by the OECD Global Forum on Transparency and Exchange of Information, and (3) has not concluded at least 12 tax treaties including an administrative assistance clause that allows the exchange of information for tax purposes, and (4) has not concluded with France such a treaty.