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19 July 2018 French transfer pricing decree completes implementation of BEPS Action 13 At the end of 2017, France formally adopted the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) Action 131 recommendations for transfer pricing documentation (Master File and Local File) into French domestic law by amending Article L 13 AA of the French Procedural Tax Code.2 This new legislation refers to a decree which aims to clarify certain practical implementation points. This decree (Decree) has now been issued by the French Ministry of Finance and was published on 30 June 2018. The Decree, included in Article R. 13 AA-1 of the French Procedural Tax Code, provides further details for taxpayers on the content and methods of presentation of their transfer pricing documentation in order for those taxpayers to be fully compliant with Article L 13 AA of the French Procedural Tax Code. It is important to note that there were three points of divergence between Chapter V of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD Guidelines) and the updated French transfer pricing documentation requirements. Specifically, the new Article L 13 AA of the French Procedural Tax Code omits to mention in 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) the following elements:
The Decree, however, added these three elements such that the French transfer pricing documentation requirements are now fully in line with Chapter V of the OECD Guidelines. The Decree also provides further guidance on the preparation of the documentation and on the format that should be adopted by taxpayers. In this respect, it is important to note that the Decree stipulates that the transfer pricing documentation (i.e., Master File and Local File) must be delivered in an electronic format in the case of tax audit, upon request from a tax inspector. The Decree further provides that "data tables contained in the transfer pricing documentation must be presented in an electronic format to allow verification of any type of calculation" by the French Tax Authorities. Moreover, the Decree identifies a format that needs to be used by taxpayers when compiling their Master File and Local File. In this respect, the Master File needs to be structured in the following five separate sections:
The Decree then provides further details as to the information that needs to be included for each of these sections, but does not go beyond the recommendations contained in Chapter V of the OECD Guidelines. The Decree further defines a threshold of €100,000 for the cross-border related party transactions that need to be documented. This threshold applies not to each separate transaction, but to each category of transaction. The Decree then provides examples of what those categories could be such as acquisitions and disposal of assets, royalties paid for patents, royalties paid for trademarks, royalties paid for know-how, and royalties paid for any other type of intellectual property, among others. In addition, the Decree states that this information should be presented in a table (which needs to include each counterparty and the jurisdiction where the counterparty is located); thus taxpayers must also provide this table in electronic form. Finally, the Decree stipulates that the financial information contained in the transfer pricing documentation needs to be sourced from the statutory accounts of the French entity and that the corresponding account numbers need to be included in the Local File. Also, if the transfer pricing policy would be based on different source data, a reconciliation needs to be made between such source data and the financial information the French entity is obliged to maintain. Although the new French legislation 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 fail to meet its transfer pricing documentation requirements expose themselves to a penalty that is the greater of:
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. Nevertheless, the requirement to provide any financial data contained in the transfer pricing documentation in electronic format (e.g., Excel) and the requirement to include relevant account numbers and, in certain cases, reconciliations to statutory accounts, will likely increase the compliance burden for taxpayers even further. 2 See EY Global Tax Alert, France aligns transfer pricing documentation requirements with OECD Action 13 Master File and Local File, dated 9 January 2018.
Document ID: 2018-5878 |
