FRANCE LAW AND PRACTICE Contributed by: Caroline Silberztein, Benoît Granel, Jean-Baptiste Tristram, Lionel Ochs and Laura Nguyên-Lapierre, Baker McKenzie
3. Methods and Method Selection and Application 3.1 Transfer Pricing Methods While the OECD Transfer Pricing Guidelines are not directly binding under French law, the FTA generally follows the OECD guidance. In particu - lar, the OECD-recognised TP methods – ie, the comparable uncontrolled price (CUP) method, resale price method, cost-plus method, trans - actional net margin method (TNMM) and trans - actional profit split method – are referred to in its published administrative guidelines, and are accepted and used by the FTA during audits (FTA guidelines: BOI-BIC-BASE-80-10-20). 3.2 Unspecified Methods TP methods are not expressly referred to in French law. However, administrative guidelines state that in addition to the five OECD-recog - nised methods, any method adopted by an enterprise may be considered admissible if it is justified, consistent with the functions performed and the risks assumed, and if the remuneration complies with the arm’s length principle (FTA guidelines: BOI-BIC-BASE-80-10-10 §130). 3.3 Hierarchy of Methods French law does not provide for any hierarchy of TP methods. The French administrative guide - lines refer to the OECD’s “most appropriate method” concept. 3.4 Ranges and Statistical Measures The use of ranges or statistical measures is not required per se under French law. However, the French administrative guidelines state the fol - lowing: “In some cases, it is possible to apply the arm’s length principle on the basis of a single figure (examples: a price or a margin). But in general,
the sample of comparable companies is made up of companies with different profitability ratios. The company will therefore have to position itself in relation to these companies from the selected panel. A statistical distribution of the companies in the selected sample should then be made using the median and quartiles. In the absence of evidence to support the selec- tion of a particular point as the most appropriate, it is customary to consider the median as the arm’s length remuneration towards which the company should aspire for its intra-group trans- actions. However, any point within the ‘arm’s length range’, which constitutes a price range representing the conditions of an arm’s length transaction between related companies, is con- sidered acceptable when the results of the study used to establish it are characterized by a high degree of reliability. Remark: In practice, it is common to use as the arm’s length interval the interquartile range” . See 14.2 Significant Court Rulings for further details. 3.5 Comparability Adjustments French law does not expressly require compa - rability adjustments. Administrative guidelines indicate that when searching for comparables, comparability adjustments are required for sig - nificant differences between the functions car - ried out by the controlled enterprise and the set of independent entities to which it is compared (FTA guidelines: BOI-BIC-BASE-80-10-10 §260). In practice, comparability adjustments are gen - erally well accepted by the FTA to the extent that they improve comparability.
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