24 June 2014
Global Tax Alert
News from Transfer Pricing
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French Tax Authorities
release unofficial draft of
Transfer Pricing Statement
required to be filed with
2013 tax return
Executive summary
On 8 December, 2013, the French Government adopted a new, additional transfer
pricing documentation requirement, codified under Article 223 quinquies B of the
French General Tax Code, obliging certain taxpayers to file a “reduced” transfer
pricing documentation within six months of the official deadline for filing their
tax return.
This new law applies to all tax returns filed after 8 December, 2013 and thus in
practice applies to taxpayers that meet the requirements and that have a financial
year ending 30 September 2013 or thereafter. Great uncertainty surrounded this
new law as no official tax return form nor any formal guidance has been issued by the
French Tax Authorities (FTA) to inform taxpayers how to comply with this new law.
In June 2014, the FTA released an unofficial and draft version of this new tax
return form (Transfer Pricing Statement), to professional organizations with the
stated objective to seek comments from industry. This draft form is therefore very
likely subject to change, but does provide insight into the FTA’s continuing efforts
to collect standardized information related to transfer pricing for risk assessment
purposes.
For reference purposes, this Tax Alert also briefly summarizes the transfer pricing
related changes to French tax law that were enacted in the past 12 months.
Detailed discussion
The Fight Against Tax Evasion
and Financial Criminality Bill
that entered into force on 8
December 2013 introduced
Article 223 quinquies B in the
French General Tax Code (FGTC),
which substantially reinforces
existing French transfer pricing
documentation requirements.
Taxpayers filing their Corporate
Income Tax (CIT) return as from
this date that are subject to the
provisions of Article L13AA of the
French Procedural Tax Code (FPTC)
must, in addition to the preparation
of a “full” transfer pricing report,
file “reduced” transfer pricing
documentation, within six months
of the filing deadline for their CIT
return.
According to Article 223 quinquies
B of the FGTC, the “reduced”
transfer pricing documentation
should provide the following
information:
• General description of the
group (activities undertaken,
main intangible assets owned
in connection with the French
taxpayer, transfer pricing policy
applied, changes that occurred
in the last FY).
• Specific information regarding the
French entity (activities carried
out, changes in the last FY, list of
the intercompany transactions
if the aggregated amount per
type of transaction exceeds
€100,000, presentation of the
transfer pricing methods used for
determining arm’s length transfer
prices, changes that occurred in
the last FY).
2
As such, no detailed functional
analyses or economic analyses
are required to be filed by means
of this “reduced” transfer pricing
documentation.
This new law applies to all tax
returns filed after 8 December,
2013 and thus in practice applies
to MNEs eligible to Article L13AA
of the FPTC (with notably the €400
million thresholds of total net
sales before taxes, or total gross
assets) and that have a financial
year ending 30 September 2013
or thereafter. Great uncertainty
surrounded this new law as no
official tax return form nor any
formal guidance has been issued
by the French Tax Authorities (FTA)
to inform taxpayers how to comply
with this new law.
In June 2014, the FTA released
an unofficial and draft version of
this new tax return form (Transfer
Pricing Statement), to professional
organizations with the stated
objective to seek comments from
industry. It is a certainty that this
draft Transfer Pricing Statement will
give rise to numerous comments
from business representatives and it
should therefore not be considered
as a final version, but the following
points merit attention nevertheless:
• Most MNEs retain their transfer
pricing documentation in the
English language and doing
so does not expose the MNEs
in question to transfer pricing
documentation penalties. The
draft Transfer Pricing Statement
issued by the FTA, however,
specifically states that the
information needs to be submitted
Global Tax Alert Transfer pricing
in the French language. Although
all the information that needs to
be filed under this new obligation
can be found in the “full” transfer
pricing documentation, taxpayers
therefore appear to being forced
to incur additional compliance
costs, i.e., translation costs, in
addition to the administrative
costs this new obligation creates.
• Administrative guidance currently
specifies that any omission or
inaccuracy in filing tax return
information is punishable with a
fine of €150, or with a penalty of
€15 per breach with a maximum
of €10,000. It could therefore
be argued that failure to file the
Transfer Pricing Statement would
incur a fine of €150.
However, the draft form issued by
the FTA explains that any omission
or inaccuracy in the form will
incur a penalty of €15 per breach
with a maximum of €10,000. It
is unclear whether submitting in
English when copying or pasting
information from the existing
transfer pricing report would be
regarded as (potentially) subject
to a €150 penalty, or whether
each information element
submitted in English would be
subject to a €15 penalty (with a
maximum of €10,000).
• The draft Transfer Pricing
Statement provides for a specific
box to be ticked if any change in
the business and/or the transfer
pricing methods occurred during
the year. It is generally expected
that this information in particular
will be used as a risk assessment
tool by the FTA.
As previously stated, this draft
Transfer Pricing Statement
will be subject to change, but
demonstrates the ongoing efforts
of the FTA to standardize transfer
pricing-related information, which
can in turn be processed for
risk assessment purposes. This
new “reduced” transfer pricing
documentation obligation should
also be viewed in the overall context
of transfer pricing enforcement
efforts by the FTA, as explained
below.
Summary of other French transfer
pricing related changes enacted
into law in the past 12 months
This new Transfer Pricing Statement
comes at a time when the FTA have
been endowed with new powers and
tools to scrutinize transfer pricing
information during a tax audit. Such
additional tools that were made
available to the FTA in the past
12 months are summarized below:
• Requirement to communicate
computerized accounting for
all tax audits initiated as from
1 January 2014
Certain taxpayers must provide
a file detailing all the accounting
entries (article L 47 A 1 of the
FPTC), i.e., accounting records
in the form of an accounting
entry file (AEF). This requirement
includes the provision of
18 compulsory fields in a
predetermined format imposed
by the FTA. The non-disclosure
of the AEF compliant with French
requirements will currently give
rise to a €1,500 penalty.
• Requirement to disclose foreign
rulings in the “full” transfer
pricing documentation
Taxpayers that fall within the
scope of Article L13AA of the
FPTC (see above) are required to
include in their transfer pricing
documentation, tax rulings
(as defined by French tax law)
obtained by all related parties
from foreign tax authorities,
as from 31 December 2013.
However, the requirement does
not cover rulings obtained from
foreign tax authorities that would
not be available to the French
taxpayer.
• Communication of the analytical
and consolidated accounts in the
event of a tax audit
From 31 December 2013,
companies in the scope of
L13AA (see above) or with a
turnover exceeding €152.4m
Global Tax Alert Transfer pricing
or €76.2m depending on their
business activity, will have to
communicate their management
accounts in the event of an
audit. The precise definition of
management accounts should
be further clarified in future
regulatory guidelines. Besides,
French companies will also have
to disclose the detail of their
consolidated accounts, allowing
the FTA to identify the tax reserves
for instance. Currently, the penalty
for failure to comply with these
provisions is limited to €1,500.
Implications
The introduction of this “reduced”
transfer pricing contemporaneous
documentation requirement
should be regarded as a new risk
assessment tool being rolled out
by the FTA. In addition, as tax
returns can be filed three years (or
more) before they are subject to
audit, taxpayers are well advised
to consider the link that will be
made by the FTA between this new
Transfer Pricing Statement, which is
submitted with or shortly after the
tax return, and the Transfer Pricing
Report, which is handed over in
case of tax audit only.
3
For additional information with respect to this Alert, please contact the following:
EY, Société d’Avocats, Paris
• Franck Berger
• Jan Martens
• Patrice Jan
• Karen Chauveau
4
+33 1 55 61 15 12
+33 1 55 61 13 20
+33 1 55 61 11 10
+33 1 55 61 16 29
Global Tax Alert Transfer pricing
[email protected]
[email protected]
[email protected]
[email protected]
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EYG No. CM4452
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