FRANCE Law and Practice Contributed by: Alexis Popov, Martin Serre and Stéphane Duchesne, &Co Advisory
cation aligns with value creation, particularly in the context of tax audits. Although no specific statutory provision applies, the French Tax Authorities frequently challenge arrange - ments in which the allocation of profits does not reflect the allocation of functions, risks, and assets. In this context, particular attention is given to: • marketing and commercial expenses incurred by French entities that may contribute to the develop - ment of group intangibles, especially where such entities report low or negative results (for example, “flagship stores” in the luxury industry); and • business restructurings involving the implicit trans - fer of functions, risks, or assets. 11.4 Financial Transactions Financial transactions are subject to increasing scru - tiny in France. French administrative guidance was significantly strengthened in 2021 with the publication of detailed guidance in the administrative doctrine, which incor - porates the principles set out in Chapter X of the OECD Guidelines. This guidance clarifies the French tax authorities’ approach to intra-group financing, including the assessment of the borrower’s creditwor - thiness, the delineation of financial transactions, and the role of implicit group support. Taxpayers are required to demonstrate that interest rates reflect market conditions, taking into account the specific characteristics of the transaction, such as maturity, currency, guarantees, and the borrower’s standalone credit profile. Simplified approaches or unsupported assumptions and comparability adjust - ments are frequently challenged, as confirmed by recent case law. French tax law also provides for automatic interest deductibility limitations. Article 39, 1–3° of the French Tax Code establishes a reference rate based on Banque de France data, which determines a maxi - mum deductible interest rate (“ceiling rate”). When this rate is applied, taxpayers are not required to provide any supporting benchmarking analysis. The applica - tion of a higher interest rate remains possible, provid -
ed that sufficient evidence – typically a benchmarking analysis – is supplied to demonstrate that the selected rate is arm’s length. 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. 12. Co-Ordination With Customs Valuation 12.1 Co-Ordination Requirements Between Transfer Pricing and Customs Valuation Transfer pricing and customs valuation are governed by distinct legal frameworks, yet they are closely inter - connected in practice. Transfer pricing determines taxable income under Article 57 of the French Tax Code, while customs valuation determines the cus - toms value of imported goods under the EU Customs Code (UCC), which serves as the basis for customs duties and import VAT. In a group context, the transfer price applied to imported goods therefore has a direct and immediate impact on customs valuation. French Customs recognises that transfer pricing may be used as a basis for customs valuation under the transaction value method, provided that the relation - ship between the parties does not influence the price within the meaning of Articles 70 of the UCC and 134 of Implementing Regulation 2015/2447. Transfer pricing documentation, intercompany agreements, and even APAs may be relied upon as supporting evidence. However, such documentation does not replace the specific customs analysis required to demonstrate that the price is acceptable for customs purposes. A key practical difficulty arises from year-end transfer pricing adjustments. While transfer pricing policies frequently rely on ex-post adjustments, customs valu - ation requires a price that is known or determinable at the time of importation. French Customs addresses this mismatch through specific mechanisms. Importers may apply for a provisional value authorisation, allow - ing goods to be declared based on estimated values and subsequently regularised once final transfer pric - ing figures are available. Alternatively, an adjustment
87 CHAMBERS.COM
Powered by FlippingBook