FRANCE Law and Practice Contributed by: Alexis Popov, Martin Serre and Stéphane Duchesne, &Co Advisory
2. Definition of Control/Related Parties 2.1 Application of Transfer Pricing Rules Article 57 of the French General Tax Code (CGI) applies to transactions between a French entity and a foreign entity where a relationship of dependence or control exists. This provision covers situations in which: • a French entity controls a foreign entity; • a foreign entity controls a French entity; or • both entities are under common control. Control may arise in the following situations. • Legal ownership – where one entity directly or indirectly holds more than half of the share capital or voting rights of another entity. • De facto control – characterised by circumstances in which strategic, financial, or operational deci - sions are effectively dictated by another entity, or where the overall conduct of the business reflects a situation of subordination. By exception, where a French entity enters into trans - actions with an entity established in a jurisdiction ben - efiting from a privileged tax regime (within the meaning of Article 238 A of the CGI) or in a non-cooperative territory, the existence of a control relationship does not need to be demonstrated. 3. Methods and Method Selection and Application 3.1 Transfer Pricing Methods The methods accepted in France correspond to those recognised by the OECD Guidelines and are explicitly referenced in administrative guidance. These include the comparable uncontrolled price method (CUP), resale price method (RPM), cost-plus method (CPM), transactional net margin method (TNMM), and trans - actional profit split method (PSM). In practice, the French Tax Authorities frequently rely on the TNMM, particularly when characterising French entities as performing deemed non-complex activi -
• The scope and content of the documentation requirements evolved as from 1 January 2018 and have since been fully aligned with the OECD-rec - ommended format (Master File and Local File). The current French documentation requirements do not deviate from the standard structure set out in Chapter V of the OECD Transfer Pricing Guidelines. Significant recent changes were introduced by the Finance Law for 2024, further reinforcing the binding nature of transfer pricing documentation and strength - ening alignment with the OECD approach on Hard- to-Value Intangibles (HTVI). These measures apply to fiscal years starting on or after 1 January 2024 and include the following. • A reduction in the transfer pricing documentation thresholds, from EUR400 million to EUR150 million of turnover or gross assets (as determined under statutory accounts). • The opposability of transfer pricing documentation – where the content of the documentation deviates from the taxpayer’s actual transfer pricing policies or results, the documentation may be used against the taxpayer and treated as a presumption of profit shifting within the meaning of Article 57 of the French Tax Code, unless the taxpayer can demon - strate otherwise. • An increase in the minimum penalties for missing or incomplete transfer pricing documentation, from EUR10,000 to EUR50,000 per fiscal year. • The introduction of specific provisions aligned with the OECD approach to Hard-to-Value Intangibles (HTVI), under which: (a) the French Tax Authorities may rely on ex- post outcomes to reassess the valuation of an intangible; (b) the statute of limitations is extended to six years (Article L169 of the French Tax Procedure Code, as amended); and (c) procedural safeguards applicable to standard tax audits (such as limitations on repeat audits) do not apply.
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