FRANCE LAW AND PRACTICE Contributed by: Caroline Silberztein, Benoît Granel, Jean-Baptiste Tristram, Lionel Ochs and Laura Nguyên-Lapierre, Baker McKenzie
9.3 Impact of the Base Erosion and Profit Shifting (BEPS) Project The impact of the BEPS project on the French domestic TP landscape is described below. Other important issues such as hybrid entities, controlled foreign companies (CFCs) and per - manent establishment are excluded. Action 1: Addressing the Tax Challenges of the Digital Economy The final report on Action 1 did not provide for specific recommendations. The FTA has aggres - sively audited digital economy players in France. The FTA typically argues that marketing and sales support entities of digital companies cre - ate dependent agent permanent establishments in France. In a recent Conversant/Value Click case, the Administrative Supreme Court ruled in favour of the FTA. France also introduced “tax on certain services provided by large companies in the digital sector” , effective since 1 January 2019. See also 9.4 Impact of BEPS 2.0 . Action 4: Limiting Base Erosion Involving Interest Deductions and Other Financial Payments In line with Action 4 recommendations, and in application of the EU Anti-Tax Avoidance Direc - tive (ATAD) (Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the func - tioning of the internal market), the deductibility of net financial charges is capped at the higher of 30% of the adjusted earnings before inter - est, taxes, depreciation, amortisation and gains or losses subject to reduced tax rates, or EUR3 million per fiscal year.
Action 5: Countering Harmful Tax Practices More Effectively, Taking Into Account Transparency and Substance French TP documentation provisions include a requirement to provide the FTA with a list of cost contribution arrangements, copy of APAs and TP rulings that affect the results of the audited enterprise. In addition, France exchanges rulings and APAs in the application of Council Directive (EU) 2015/2376 of 8 December 2015 amending Directive 2011/16/EU on mandatory automatic exchange of information in the field of taxa - tion, and through tax treaties. Furthermore, the French IP box regime has been revised (Article 39 terdecies of the FTC) and the limitation of deductibility of payments made to foreign recipi - ents benefitting from a favourable tax regime has been modified (Article 238 A of the FTC). Action 13: Guidance on TP Documentation and CbCR France has implemented the OECD TP docu - mentation recommendations and the CbC reporting minimum standard. Action 14: Making Dispute Resolution Mechanisms More Effective France applies the EU Directive and the EU Arbi - tration Convention, and has tax treaties in place containing MAP clauses and – in some cases – arbitration clauses. In addition, modifications are being made through the multilateral instrument (see Action 15). Action 15: Developing a Multilateral Instrument to Modify Bilateral Tax Treaties France signed the multilateral instrument and submitted its instrument of ratification to the OECD on 27 September 2018 to implement tax- treaty-related measures provided by the BEPS reports. France opted for part IV, related to arbi - tration.
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