FRANCE Law and Practice Contributed by: Alexis Popov, Martin Serre and Stéphane Duchesne, &Co Advisory
poses. Accordingly, the analysis should follow stand - ard transfer pricing principles. In practice, the French Tax Authorities pay particular attention to the following aspects: • the allocation of functions between the entity and its permanent establishment; • the existence of decision-making capabilities at the level of the permanent establishment; and • the consistency between contractual arrangements and actual operational activities. No specific safe harbour applies. Each situation is assessed on the basis of its own facts and circum - stances. 10. Relevance of the United Nations Practical Manual on Transfer Pricing 10.1 Impact of UN Practical Manual on Transfer Pricing The UN Practical Manual on Transfer Pricing does not have a direct impact on transfer pricing practice in France. It is not referenced in French legislation, administra - tive doctrine, or standard audit practice. The French Tax Authorities rely primarily on the OECD Transfer Pricing Guidelines, which constitute the central inter - pretative framework for the application of Article 57 of the French Tax Code. In practice, the UN Manual may be used as a second - ary reference in specific contexts, particularly where transactions involve developing countries or where treaty provisions are influenced by the UN Model Con - vention. However, such use remains limited and does not influence the overall approach of the FTA. 11. Safe Harbours or Other Unique Rules 11.1 Transfer Pricing Safe Harbours Although French legislation does not formally provide for a transfer pricing safe harbour for low value-add -
ing intra-group services, in practice taxpayers may apply a standard mark-up of 5% where the services meet the criteria set out in the OECD Transfer Pricing Guidelines. In such cases, there is no requirement to perform a dedicated benchmarking analysis. The key condition is the correct characterisation of the servic - es as low value-adding, supported by an appropriate and well-documented functional analysis. With respect to financial transactions, France applies automatic limitations on the deductibility of interest. Article 39, 1–3° of the French Tax Code sets a refer - ence interest rate based on Banque de France data, which determines a maximum deductible interest rate (the “ceiling rate”). Where the taxpayer applies this ceiling rate, no supporting benchmarking analysis is required. However, the application of a higher interest rate remains possible, provided that the taxpayer can sufficiently demonstrate the arm’s length nature of the rate, in practice through a benchmarking analysis. In addition, Article 212 bis of the CGI limits the deduct - ibility of net borrowing costs to the higher of EUR3 million or 30% of EBITDA, in line with the EU Anti-Tax Avoidance Directive. These mechanisms do not eliminate transfer pricing risk. The French Tax Authorities retain the ability to challenge both the characterisation of services and the pricing of financial transactions where they con - sider that the conditions deviate from the arm’s length principle. 11.2 Rules on Savings Arising From Operating in the Jurisdiction French transfer pricing rules do not contain specific provisions addressing location savings. Consequent - ly, there is no systematic adjustment mechanism or predefined methodology. Where relevant, any analy - sis must therefore be carried out on a case-by-case basis. 11.3 Unique Transfer Pricing Rules or Practices French transfer pricing practice is characterised by a strong emphasis on economic substance and on the provision of evidence demonstrating that profit allo -
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