French Transfer Pricing Documentation Requirements

Proper documentation is a cornerstone of compliance with transfer pricing rules in France. For international businesses operating in or through France, understanding the legal obligations around documentation is essential to avoid significant penalties and ensure alignment with global standards. This blog explains what is transfer pricing documentation and the French transfer pricing documentation  requirements. What is transfer pricing documentation? Transfer pricing documentation is a set of records that multinational companies must prepare to justify the prices charged in transactions between related entities. It shows that these prices follow the arm’s length principle and comply with local and international tax rules, such as the OECD Transfer Pricing Guidelines. This documentation typically includes a master file, local file, and sometimes a country-by-country report, depending on the size and structure of the business. French Transfer Pricing Documentation Requirements Who Is Required to Prepare Transfer Pricing Documentation? Under Article L. 13 AA of the French Tax Procedure Code (FTPC), the obligation to maintain formal transfer pricing documentation applies to: French companies (or French permanent establishments of foreign enterprises) that have: Annual turnover (excluding tax) or total gross assets of at least €150 million, or Ownership—direct or indirect—of more than 50% of another company that meets the threshold above, or Are themselves more than 50% owned by a legal entity meeting the above condition, or Are part of a French tax-consolidated group that includes at least one entity satisfying any of the criteria above. These transfer pricing rules in France apply broadly, capturing both French multinationals and foreign businesses with substantial French operations. Lighter Requirements for Smaller Entities Entities that do not meet the thresholds under Article L. 13 AA may still be asked to provide transfer pricing information under Article L. 13 B of the FTPC. In such cases, the French Tax Administration (FTA) may request a simplified version of the documentation, often referred to as a “light” file. Companies typically have 60 to 90 days to respond. What Must Be Included in the Documentation? Companies subject to Article L. 13 AA must prepare and retain transfer pricing documentation that includes: A master file: providing an overview of the global operations of the multinational group. A local file: containing detailed information about the local entity’s intragroup transactions, functional analysis, and comparable. A reconciliation file: linking the applied transfer prices to the French statutory financial statements. The documentation must be available at the start of any tax audit and provided in electronic format. Mandatory Filing: Form 2257-SD French companies with annual turnover or gross assets of €50 million or more, or that own or are owned (directly or indirectly) by another company meeting this threshold, must submit Form 2257-SD. This annual transfer pricing return must be filed electronically within six months after filing the corporate income tax return. Country-by-Country Reporting (CbCR) In line with OECD BEPS Action 13 and EU law, France has implemented Country-by-Country Reporting rules: Applies to multinational groups with consolidated revenues exceeding €750 million. Effective for fiscal years beginning on or after January 1, 2016. Includes Public CbCR for certain businesses, increasing transparency and global comparability. Exemptions Exemptions from transfer pricing documentation and declaration requirements apply when cross-border intra-group transactions of a specific type do not exceed €100,000 during a given fiscal year. This threshold is calculated separately for each transaction type and does not allow for offsetting between revenues and expenses. What to know more about Transfer Pricing Requirements for International Businesses? Read our dedicated blog! In conclusion, transfer pricing documentation is essential for international businesses in France to demonstrate compliance with tax laws and avoid heavy penalties. By meeting the local requirements and aligning with OECD standards, companies can ensure transparency and reduce audit risks.

Transfer Pricing for International Business in France

Transfer pricing for international businesses is a crucial area of tax compliance that affects multinational companies operating across borders. For multinational companies in France, complying with transfer pricing rules in France is essential to avoid costly penalties and disputes. This blog provides an overview of key transfer pricing concepts, explains why transfer pricing is important, and summarizes the OECD transfer pricing methods that guide multinational businesses worldwide. What is Transfer Pricing? Transfer pricing refers to the pricing of transactions between related entities within a multinational group. These transactions can include goods, services, intellectual property, loans, or other intercompany dealings. For multinational companies operating in France, understanding transfer pricing is critical to ensure tax compliance and avoid penalties. France’s transfer pricing rules are closely aligned with the OECD Transfer Pricing Guidelines, which serve as a global standard for setting intercompany prices. Central to these rules is the arm’s length principle.  What is the arm’s length principle? This is a concept that requires related-party transactions to be priced as if the entities were unrelated and operating under market conditions. In simpler terms, multinational companies must structure their intra-group transactions in a way that reflects the price two independent businesses would agree upon in comparable circumstances. Transfer pricing in France is applicable to all French-resident companies and includes branches of foreign entities operating in the country. This means international businesses with a presence in France must ensure their pricing strategies meet French and OECD standards. Why is Transfer Pricing Important? Non-compliance can result in significant tax adjustments, penalties, and reputational risks. Companies are allowed to make year-end transfer pricing adjustments, provided they can fully justify them. However, the French tax authority does not permit retroactive offsets between different fiscal years or between separate group entities. Penalties of non-compliance with transfer pricing rules Failure to comply with transfer pricing documentation requirements in France can lead to severe financial penalties. French entities falling within the scope of Article L. 13 AA of the French Tax Procedure Code (FTPC) are required to prepare and maintain detailed documentation to justify their intercompany transactions. If this obligation is not met, the penalties imposed can be significant. For each audited year, the penalty is calculated as the higher of: 0.5% of the amount of intercompany transactions that were omitted or insufficiently documented, or 5% of the reassessed taxable base related to those transactions.In all cases, the minimum fine is €50,000 per audited year. In addition, if a company fails to respond adequately under Article L. 13 B of the FTPC, typically related to requests for information during a tax audit, it may face a fixed penalty of €10,000 per year. There are also specific penalties associated with failure to file the 2257-SD transfer pricing return: Missing the submission deadline results in a €150 fine. Inaccuracies or omissions in the return (excluding cases of force majeure) incur a fine of €15 per error, with total penalties ranging from a minimum of €60 to a maximum of €10,000. It’s important to note that when a tax audit reveals more than €100,000 in reassessed taxes and certain penalties apply, the French Tax Authority (FTA) is obligated to refer the matter to the public prosecutor, which may lead to legal proceedings beyond tax penalties. OECD Transfer Pricing Guidelines The OECD Transfer Pricing Guidelines serve as the international benchmark for applying the arm’s length principle in in intra-group transactions. They provide a structured framework for evaluating how related-party transactions should be priced, as if they had occurred between independent entities under comparable conditions. Central to the guidelines is the selection of an appropriate pricing method, tailored to each case’s circumstances, reliability of data, and comparability. These methods fall into two main categories: traditional transaction methods and transactional profit methods. Traditional Transaction Methods Comparable Uncontrolled Price Method This technique evaluates the price charged in a controlled transaction (between related entities) by comparing it to the price applied in a comparable uncontrolled transaction (between independent parties) under similar conditions. This method is considered reliable when one of the following criteria is satisfied: The transaction in the open market is not materially affected by any differences in the circumstances of the transaction or the characteristics of the parties involved. Reasonable adjustments can be made to account for those differences and eliminate their impact on pricing.   Due to its direct approach in determining the arm’s length price, the CUP method is widely regarded as one of the most commonly applied and reliable methods in transfer pricing analysis. Resale Price Method This is categorized as a one-sided method, primarily used when a product is purchased from a related party and then resold to an independent third party. The transfer price is determined by taking the resale price to the third party and subtracting a gross margin that reflects the functions performed, risks assumed, and assets used by the reseller. This margin should align with what an independent distributor would earn in a comparable transaction. Cost Plus Method CPM is often employed when evaluating transactions involving the provision of services or the supply of tangible property, especially when such services are complex and difficult to value. This method involves identifying all costs incurred by the service provider (including both direct and indirect costs) and then adding an appropriate markup. This markup reflects the profit that a comparable independent entity would earn for performing similar functions under similar conditions. Transactional Profit Methods Transactional New Margin Method TNMM evaluates whether the amount charged in a controlled transaction is at arm’s length by comparing the net profit margin relative to an appropriate financial indicator, such as sales, assets, or costs, earned in similar uncontrolled transactions. While TNMM is commonly used due to its flexibility and applicability in many scenarios, it tends to be less accurate in situations where both parties to a transaction make distinct and significant contributions, especially when those contributions involve unique intangibles or specialized functions. Transactional Profit Split Method TPSM aims to allocate the combined profits (or losses)

What Global Companies Need to Know About French GAAP?

This guide helps foreign firms understand French GAAP, how they differ from international standards like IFRS, and what to expect in terms of reporting obligations.