FRANCE Trends and Developments Contributed by: Alexis Popov, Martin Serre and Stéphane Duchesne, &Co Advisory
cepts, it clearly reflected the authorities’ increasing focus on value creation and economic contribution. Over time, however, the FTA’s approach has become more structured and economically grounded. Rather than relying primarily on conceptual arguments, audits now place greater emphasis on financial indicators and comparability analyses. A recurring line of rea - soning consists of comparing the operating expens - es and profitability of the French entity with those of independent companies operating under similar con - ditions. Where significant deviations are identified – particularly in loss‑making situations – the FTA may argue that the expense structure is not aligned with the entity’s functional profile and that part of the costs effectively benefits the group. At the same time, the FTA has shown a greater will - ingness to consider detailed economic explanations, including market‑specific conditions, brand position - ing and commercial strategy, as well as broader eco - nomic or sectoral factors that may explain temporary or structural losses. This evolution reflects a more technical and balanced approach. The FTA is arguably better equipped to assess complex fact patterns and is more likely to engage with well‑supported arguments, provided these are clearly articulated and appropriately docu - mented. From a documentation perspective, the implications are significant. It is no longer sufficient to assert that an entity is “routine” and should therefore earn a sta - ble margin. Where losses arise, taxpayers are expect - ed to provide a detailed and coherent explanation of the operational drivers behind those losses and their consistency with the entity’s role within the group. In practice, this requires going beyond surface‑level functional analyses. Transfer pricing documentation should include detailed functional, and in some cas - es value creation, analyses supporting the economic rationale for the entity’s performance. Where taxpay - ers provide fact‑based, economically robust analyses – including during the audit phase itself, for example in responses to information requests – these arguments are increasingly taken into account and may lead to
a reduction or even the withdrawal of reassessments at an early stage. Business restructurings Business restructurings remain a core area of scrutiny in France, with growing attention paid to both explicit and implicit transfers of value. While the underlying principles are well established, the level of technical review applied by the FTA has intensified consider - ably. Explicit transfers of intangibles are now subject to much more detailed examination, particularly with respect to valuation analyses. Valuation reports are no longer assessed as standalone deliverables, but are critically reviewed in light of their assumptions, economic context and transaction timing. The FTA increasingly challenges: • financial projections used in valuations; • discount rates and other key valuation parameters and assumptions; and • the articulation and consistency of valuation inputs with the group’s transfer pricing policy and ex‑post results. As a result, the mere existence of a valuation report is no longer sufficient. Taxpayers are expected to pro - vide detailed justification for the economic rationale underpinning the assumptions used, specifically from a transfer pricing perspective. This applies not only to large multinational groups, but increasingly also to mid‑sized groups, where similar expectations are now commonly observed in audit practice. Beyond explicit transfers, the FTA closely scrutinises implicit transfers of “something of value”, particularly in the context of business reorganisations. Situations such as site closures, relocations of key personnel within the value chain or the creation of new entities or establishments are systematically reviewed to deter - mine whether intangibles or other economically valu - able elements have been transferred. In this context, several points warrant particular atten - tion.
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