FRANCE LAW AND PRACTICE Contributed by: Caroline Silberztein, Benoît Granel, Jean-Baptiste Tristram, Lionel Ochs and Laura Nguyên-Lapierre, Baker McKenzie
1. Rules Governing Transfer Pricing 1.1 Statutes and Regulations French statutory and administrative approaches to transfer pricing (TP) are generally consistent with the principles set out by the Organisation for Economic Co-operation and Development (OECD). Article 57 of the French Tax Code (FTC) allows the French Tax Administration (FTA) to adjust the profits of a French enterprise if it has indirectly transferred profits to a foreign asso - ciated enterprise by an increase or decrease in the purchase or sale prices, or by any other means. If it lacks precise elements to support the assessment, the FTA determines the taxable profits by comparing those of similar enterpris - es exploited “normally” . French legislation also sets requirements in terms of TP documentation (Article L 13 AA and L 13 B of the French Book of Tax Procedures; FBTP), an annual TP decla - ration (Article 223 quinquies B of the FTC) and country-by-country (CbC) reporting (Article 223 quinquies C of the FTC), as well as public CbC reporting (see 8.2 Transfer Pricing Documenta- tion ). French administrative guidelines provide information on the application of the TP rules in France (FTA guidelines: BOI-BIC-BASE-80). 1.2 Current Regime and Recent Changes Article 57 I of the FTC, the domestic legal basis for TP, results from Article 68 of the Law of 31 May 1933, and its wording has since been kept almost unchanged. In 1933, the French government indicated, in the explanatory memorandum relating to this arti - cle, that “Article 57 would tend to modify the tax base on industrial and commercial profits for French companies controlled by foreign compa- nies or controlling them” .
2. Definition of Control/Related Parties 2.1 Application of Transfer Pricing Rules Article 57 of the FTC applies in the case of trans - fer of profits by a French enterprise that either controls, is controlled by or is under the same control as a foreign enterprise. Article 57 does not further define the notion of control/depend - ence. It follows from case law and administrative guidelines that situations of legal dependency, either directly or indirectly, are covered. Such situations include the following: • an enterprise holds a predominant part of a company’s capital in another country or the absolute majority of the voting rights; and • an enterprise exercises, directly or indirectly, decision-making powers in another company. Article 57 also covers situations of “de facto control” , where one enterprise is under the con - trol of another, either as a result of contractual provisions or because the actual conditions of their relationships are such that the first enter - prise has the power to impose unfavourable economic conditions on the second. The FTA does not need to establish the exist - ence of control between a French and a foreign enterprise if the latter is established in a foreign country or territory with a privileged tax regime (ie, the foreign enterprise is subject to corporate tax at a rate lower than the 40% corporate tax rate that would have been applied if it had been taxable in France), or in a noncooperative state or territory (list published regularly).
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