Everything You Need to Know About Insolvency Proceedings in France
Understanding insolvency law in France is essential for businesses operating in the country or planning to expand into the French market. Insolvency law provides a structured framework to manage companies facing financial distress, offering pathways for restructuring, debt repayment, or orderly liquidation. This blog explores the key aspects of insolvency proceedings in France, including the conditions for entry into different procedures, and the distinction between insolvency, bankruptcy, and restructuring. What Is Insolvency Law? Insolvency law in France governs the legal processes applicable when companies face financial distress, including restructuring or winding-up procedures. Put simply, it is the framework established to manage companies that can no longer meet financial obligations, ensuring orderly treatment of creditors and attempts at business rescue where feasible. When Is a Company Considered Insolvent? In France, a company is deemed insolvent when it reaches the state of “cessation des paiements”, meaning it is no longer able to meet its financial obligations as they become due with the available liquid assets. This status triggers the legal obligation for directors to act quickly, either by initiating insolvency proceedings in France or by seeking early-stage solutions like conciliation. Difference Between Insolvency, Bankruptcy, and Restructuring It is important to distinguish insolvency from related concepts: Insolvency vs. BankruptcyInsolvency is a financial condition indicating that a company cannot pay its debts on time. Bankruptcy, on the other hand, is a legal declaration by a court that the company is insolvent, often leading to judicial liquidation or reorganization. Not all insolvent companies are automatically declared bankrupt; insolvency is a trigger, whereas bankruptcy is a legal consequence. Insolvency vs. RestructuringRestructuring involves reorganising a company’s debts, assets, or operations to restore financial health while maintaining business continuity. Insolvency is the condition that may necessitate restructuring. Understanding these distinctions is crucial for directors and investors, as it informs which legal options are available under French insolvency law and the timing for taking protective or corrective action. Legal Framework Governing Insolvency in France The core legal basis for insolvency proceedings in France is contained in Book VI of the French Commercial Code (Code de Commerce), which outlines procedures applicable to enterprises in difficulty. These commercial provisions apply to all legal persons carrying out commercial, artisanal, agricultural or independent professional activities. Triggers for Insolvency Proceedings: “Cessation des paiements” The critical trigger for formal insolvency proceedings in France is the status known as “cessation des paiements,” which occurs when a company cannot pay its due debts with available liquid assets. This state of illiquidity, even if temporary, mandates swift legal action. Upon entering this state, company directors are legally required to file for restructuring or liquidation within 45 days, unless they have already initiated conciliation proceedings Court-Administered Proceedings Three main judicial options exist once insolvency is reached: Safeguard Proceedings (Procédure de sauvegarde)Initiated when the enterprise is not yet in cessation des paiements, allowing reorganization under court protection—often comparable to Chapter 11 in U.S. bankruptcy law. Judicial Reorganisation (Redressement judiciaire)Triggered when insolvency is confirmed. The court imposes a period of stabilization, during which the company continues operations while formulating a debt repayment or disposal plan. Judicial Liquidation (Liquidation judiciaire)Applied when recovery is not viable. The court orders the sale of assets to repay creditors, and the company is ultimately dissolved. Criteria for Entry into Each Restructuring Procedure Under French law, the determination of insolvency is based primarily on a cash-flow test. A company is considered insolvent (“en état de cessation des paiements”) when it cannot pay its due and payable debts from available liquid assets or assets that can be quickly converted into cash. This assessment takes into account undrawn credit facilities, other available credit reserves, and any moratoria or standstills agreed upon with creditors. Based on this framework, the entry criteria for different insolvency proceedings in France are as follows: Ad Hoc Proceedings – The company must generally be solvent. In rare cases, these proceedings have been used for companies that were temporarily insolvent, but only for a very limited period. Conciliation Proceedings – The company must be experiencing actual or anticipated legal or financial difficulties. Insolvency is permissible if it has lasted less than 45 days prior to filing the petition. Safeguard Proceedings (Procédure de Sauvegarde) – The company must still be solvent but facing difficulties that it cannot resolve on its own. There are no strict limitations on how “difficulty” is defined. Judicial Reorganisation (Redressement Judiciaire) – The company must be insolvent; however, recovery or rescue must still be realistically achievable, rather than impossible. These distinctions are crucial for determining which insolvency proceedings in France a company may pursue and for ensuring compliance with legal requirements under French insolvency law. The insolvency proceedings in France, whether conciliation, safeguard, judicial reorganisation, or liquidation, provide structured paths for potential recovery or orderly exit. Key to effective navigation is the prompt recognition of financial difficulties (cessation des paiements), adherence to legal timelines (such as the 45-day rule), and informed decision-making between proactive restructuring and necessary liquidation. By comprehending these legal pathways, businesses and their advisors can better safeguard assets, preserve value, and ensure compliance throughout financial turbulence. Want to learn about other proceedings in France? Check out our dedicated posts on accounting and tax obligations in France, transfer pricing requirements, or French GAAP.
How to Stay Compliant with France’s Influence Act of 2023
France’s Influence Act establishes clear rules for influencer marketing, protecting consumers and ensuring fair competition. The France influencer act defines obligations for influencers, agents, and advertisers, covering transparency, prohibited promotions, contracts, and liability. Understanding these influencer regulations is essential for anyone engaging in online promotional activities targeting the French market. France’s Influence Act of 9 June 2023 France has positioned itself as a pioneer in influencer regulations with the adoption of the Influence Act in France on 9 June 2023. This law was introduced to address the risks linked to influencer marketing, setting clear rules for influencers, their agents, and the brands that work with them. Background and Adoption of the Act The France Influencer Act emerged in response to the rapid rise of influencer marketing, where promotional practices often lacked transparency and consumer protection. Its main objectives are to safeguard consumers, particularly minors, and to ensure fair competition between businesses operating in the digital economy. Defining Influencers and Influencer Agents The law provides an official definition of both influencers and influencer agents, making their roles and responsibilities explicit. Influencers are defined as individuals or legal entities who, in exchange for payment or benefits, use their reputation to share online content that directly or indirectly promotes goods, services, or causes. Influencer agents are those who, also for consideration, represent influencers in their commercial activities, negotiating agreements and collaborations with brands or organizations. In addition, the Act introduces a specific status for child influencers. This provision builds on the law of 19 October 2020 regulating the commercial exploitation of children under sixteen on online platforms. It not only protects minors involved in influencer marketing but also guarantees the preservation of their income. Main Provisions of the France’s Influence Act Mandatory Written Contracts Under the Influence Act, all agreements between influencers, their agents, and advertisers must be formalized in writing. These contracts should clearly outline the roles, responsibilities, remuneration, and legal obligations of each party. Although no official decree has set an exemption threshold, written contracts are currently required for all collaborations, regardless of audience size or payment. Transparency of Sponsored Content The Influence Act in France places strict rules on sponsored content. Influencers must label such content clearly using terms like “advertisement” or “commercial collaboration”. Content modified with filters or AI tools must also carry labels such as “edited image” or “virtual image” to ensure transparency for audiences. Bans on the Promotion of Certain Products Certain types of promotions are strictly prohibited under French influencer regulations. This includes advertising: Gambling or other activities with high Plastic surgery and aesthetic medicine (Including all actions, interventions, procedures, techniques, or methods related to cosmetic treatments_ Therapy substitutes (Products, procedures, or methods presented as comparable, preferable, or substitutable to medical therapy) Risky Financial products and services (Especially cryptocurrencies and other high-risk investment instruments.) Nicotine products (This includes electronic cigarettes, “IQOS” style heated tobacco devices, and similar products.) Services such as sport coaching subscriptions or predictive sports forecasts. Influencers located outside France who promote any of the prohibited products or services listed above will have their content blocked for breaching the influence act in France. The France influencer act ensures that these influencer regulations apply to all content targeting the French audience, regardless of where the creator is based. Liability and Penalties Joint and Several Liability Influencers, their agents, and advertisers can be held jointly and severally liable for any breaches or consumer harm arising from influencer marketing. This shared responsibility ensures that all participants adhere to the influence act in France and maintain high compliance standards. Types of Penalties Violating the law can result in severe consequences, including fines of up to €300,000, imprisonment, temporary bans from promoting products, and additional compliance obligations. For example, an influencer who fails to meet transparency or content rules may face both financial penalties and restrictions on future promotional activities. The Order of 6 November 2024 The Order of 6 November 2024 introduced targeted updates to the France’s Influence Act, aligning national rules with EU directives, particularly on unfair commercial practices. These amendments refine transparency obligations, penalties, and territorial requirements for influencers and their agents. Rewriting of Provisions on Commercial Intent The order clarifies how influencers must disclose commercial intent. Sponsored content must now explicitly indicate its commercial nature, ensuring consumers are fully informed when content is paid for. Clarification of Applicable Penalties The wording of sanctions has been refined to improve understanding and enforcement. Penalties may include fines, temporary bans on promotional activities, and additional compliance obligations. These adjustments make the influencer regulations more precise and actionable. More Flexible Rules for Edited and Virtual Images Disclosure requirements for content modified with filters or AI tools have been made more flexible. The updates aim to ensure proportionality and sustainability, taking into account rapid technological changes and European AI regulations. Influencers must still clearly label edited or virtual images for their audience. Adjustments to Article 9 on Territoriality Article 9 now specifies that the influence act in France applies to individuals and entities targeting the French public. Influencers based outside the EEA or Switzerland must also maintain professional liability insurance within the EU, ensuring accountability across borders. Influencer Liability for Non-Conforming Purchases or Non-Delivery Under France’s influence act, influencers are generally not liable for defective products or non-delivery when promoting partner brands. Purchases occur directly on the brand’s website, making the brand responsible for orders. Legal action against an influencer is only possible for unfair or misleading commercial practices under EU Directive 2005/29/EC. However, if the influencer owns their own brand, their company is directly liable for any order issues. Always contact customer service rather than the influencer on social media. To learn more about dropshipping laws in France, consult our dedicated blog post. Compliance with the France’s influence act is crucial for influencers, their agents, and advertisers. By following the influence act in France and related influencer regulations, including proper disclosure, avoiding prohibited products, and clear contracts, content creators can protect consumers, reduce legal risks, and build trust
Requirements for E Invoicing and E Reporting in France
The government has introduced a new mandate for e invoicing and e reporting in France that will transform how businesses issue and exchange invoices. Under this system, all VAT-registered companies in France will be required to adopt mandatory e-invoicing in France, replacing paper invoices and simple PDFs with approved structured digital formats. The goal is to improve transparency, simplify tax reporting, and reduce fraud. This blog explains the key elements of the France e-invoicing requirements, including timelines, invoice formats, the 5-Corner Model, and the role of certified platforms, helping businesses prepare for compliance ahead of the deadlines in 2026 and 2027. What Is an “Electronic Invoice” Under the French E-Invoicing Mandate? Under the France e-invoicing mandate, only structured digital formats will be accepted as valid e-invoices in France. Traditional paper invoices or simple PDF files will no longer be sufficient. Businesses must now issue invoices in approved electronic formats that comply with European standards to meet the mandatory e invoicing requirements in France. The French tax authority (DGFIP) has confirmed formats the following as acceptable formats: Factur-X UBL 2.1 CII PeppolBIS EDIFACT Timeline for Mandatory E Invoicing in France The rollout of mandatory e invoicing in France will take place gradually: From 1 September 2026: Large companies and mid-cap companies must issue electronic invoices. From 1 September 2027: Small and medium-sized enterprises (SMEs) and micro-enterprises must also comply. The French government has noted that the France e invoicing deadline may be extended by up to six months if necessary. Scope of E Invoicing in France The new rules apply to all B2B transactions in France between VAT-registered companies. The e-invoicing requirements in France cover: The sale of goods or services in France from one taxable business to another that is not exempt from VAT. Advance payments made for these operations. Public auctions of second-hand goods, works of art, collectors’ items, and antiques. New Mandatory Invoice Details Starting from September 2026 (for large and mid-cap companies) and September 2027 (for SMEs and micro-enterprises), new information must be included on all invoices. These mandatory particulars are: The SIREN number of the business. The delivery address of the goods (if different from the customer’s address). An indication of whether the invoice relates solely to goods, solely to services, or to a mix of both. A note if VAT is payable on a debit basis, where the supplier has opted for this regime. Business Obligations Under the French E Invoicing Mandate In addition to domestic invoices, companies must also comply with e reporting requirements in France by transmitting the following to the tax authority in near real-time: Cross-border B2B invoices (imports and exports). B2C receipts (domestic and cross-border). Payment statuses for B2B and B2C service transactions. Unlike domestic B2B invoices, which must follow a structured format, these cross-border and B2C documents can still be issued as PDFs or other formats. However, the transaction data must still be reported in a structured format. Securing and Preserving Electronic Invoices To ensure compliance and authenticity, the 2023 French Finance Law authorizes the use of qualified electronic seals. This seal serves three purposes: Guaranteeing the authenticity of the origin of the invoice. Ensuring the integrity of the content. Preserving the legibility of the document. In practice, the seal certifies that the invoice was created by the legitimate issuer. Additionally, French law requires that all electronic documents, including invoices, must be kept in electronic format for ten years, starting from the date of issuance. Transition to the 5-Corner Model The 5-Corner Model Explained Here’s how the 5-Corner Model works: The supplier (seller) creates an invoice. Instead of sending it straight to the buyer, the invoice first goes to the supplier’s PDP (Partner Dematerialization Platform). The buyer also has a PDP, which receives the invoice on their behalf. While passing through the PDPs, the invoice data is also reported to the French government’s platform (PPF) for tax purposes. If the buyer doesn’t have a PDP, the PPF itself forwards the invoice to them. That’s why it’s called a 5-corner model. How It Differs from Other Models There are 3 kinds of traditional models that can be used for invoicing Interoperability Model: Businesses exchange e-invoices through their service providers, who interconnect with others. This promotes flexibility but offers limited tax authority oversight. Centralized Model: All invoices pass through a single government platform, giving tax authorities full visibility but leaving less room for private-sector innovation. Decentralized Model (CTC-based): Certified service providers validate and transmit invoices to both trading partners and the tax authority. This shifts responsibility from the government to private providers. The 5 corner model is essentially a hybrid that makes sure invoices move securely between companies while the tax office automatically gets the information it needs, without businesses having to send it twice. This structure places significant responsibility on service providers, while reducing the administrative load on the tax authority. By relying on PDPs for invoice distribution and compliance reporting, the government ensures consistency, while businesses benefit from the innovation and automation offered by the private sector. Role of Peppol and DCTCE Peppol is an international network for exchanging e-invoices and other business documents. It traditionally follows a 4-corner model, where service providers (Access Points) send invoices in the Peppol BIS format. While Peppol is mandatory in some European countries, in France it is being adapted into a more advanced CTC (Continuous Transaction Controls) model. This upgraded system, also known as the Decentralized CTC and Exchange (DCTCE) model, ensures that transaction data is reported in real time to the tax authority. France’s approach combines this decentralized model with centralized elements, creating a unique hybrid system for mandatory e-invoicing and e-reporting in France. You can read more about their functioning and country specific requirements here. Role of PDPs To meet the mandatory e invoicing in France, businesses must work with a certified Partner Dematerialization Platform (PDP). The role of PDPs include: Transmitting e-invoices and lifecycle statuses to the government platform (PPF). Exchanging invoices between PDPs: If both parties use different
Dropshipping Legal Requirements in France and VAT Rules
Dropshipping in France offers entrepreneurs an attractive way to start an online business without major upfront investment. However, success depends on strict compliance with French and EU laws. From dropshipping legal requirements to VAT thresholds and the Finance Act of 2024, understanding legislation is essential to operate safely and sustainably. What is Dropshipping? Dropshipping in France is a form of online retailing that sits between two sales models: Traditional e-commerce (distance selling): where a retailer sells products directly to the customer through their own online store. Marketplace model: where platforms such as Amazon or eBay act as intermediaries, connecting third-party sellers with end customers without being the direct sellers themselves. In the case of dropshipping, the dropshipper is legally regarded as the final seller. They are responsible for the commercial transaction with the customer, even though they never handle the stock themselves. Instead, the supplier manages inventory, packaging, and shipping. The dropshipper only places the order with the supplier once a customer has made a purchase. Dropshipping Legal Requirements in France If you are wondering “is dropshipping legal in France?” the answer is yes, but there are several dropshipping legal requirements that entrepreneurs must follow to remain compliant. Below are the key requirements. Legal Notices on the Website The first step when launching a dropshipping business in France is to include mandatory legal notices on the website. This ensures transparency by clearly identifying the person or company behind the online store. The information that must include: Full identity of the business owner: name, postal address, phone number, email, legal structure, and share capital (if applicable). Identity of the web hosting provider. Information about cookies. Details about how personal data is collected and used (GDPR compliance). General Terms and Conditions of Sale (T&Cs) Another key requirement under legislation on dropshipping in France is publishing clear and accessible General Terms and Conditions of Sale (GTC). These regulate the commercial relationship between seller and buyer and are mandatory under Article L111-1 of the French Consumer Code. The T&Cs must include: Pricing and payment terms. Delivery and return policies. Legal guarantees. The 14-day withdrawal right (mandatory under EU law). They must also be written in a way that is “readable and understandable,” and be easily accessible to customers (ideally from the homepage). Dropshipping Contract with Suppliers To avoid disputes, it is strongly recommended to establish a dropshipping contract with your suppliers. This document defines the obligations of both parties, such as product quality, delivery times, and liability in case of issues. Without a written agreement, resolving conflicts, especially with foreign suppliers, can be extremely difficult. Negotiating clear clauses upfront helps secure your business and protect your customers. Can You Get in Trouble for Dropshipping in France? While dropshipping in France is legal, it can lead to serious penalties if carried out in violation of consumer protection laws. According to legislation on dropshipping in France, this business model becomes illegal when it involves unfair or deceptive practices. When is Dropshipping Considered Illegal? Under Article L.121-1 of the French Consumer Code, an unfair commercial practice is defined as conduct that goes against professional diligence and misleads or pressures consumers into making purchasing decisions they otherwise would not have made. Dropshipping may be penalized if it falls under: Deceptive practices: such as misleading product descriptions, fake claims about product quality, or creating confusion with another brand. Aggressive practices: including repeated solicitation or applying undue pressure on consumers. Lack of transparency: for example, when the seller hides their identity, fails to provide clear general terms and conditions, or does not comply with consumer law obligations. Penalties for Illegal Dropshipping The consequences of operating outside the law can be severe. Unfair commercial practices can result in fines of up to €300,000 and two years of imprisonment for individuals, or up to €1.5 million for companies. Failure to display mandatory legal notices or non-compliant T&Cs may lead to one year of imprisonment and fines up to €75,000. The DGCCRF (French consumer watchdog) has already flagged several abusive practices linked to dropshipping, including: Fake customer reviews. Misleading claims about product characteristics. Reference prices that do not reflect actual market prices. False or exaggerated promotional offers. These examples demonstrate that although dropshipping legal requirements are straightforward, non-compliance can quickly escalate into legal trouble. VAT Rules for Dropshipping and Distance Selling in France When considering how to legally start a dropshipping business in France, understanding your tax obligations is essential. VAT applies to all forms of distance selling in France, including both traditional e-commerce and dropshipping in France. Regardless of whether you are a registered business or an individual entrepreneur, you are responsible for declaring and paying VAT. VAT Rules for Distance Sellers in the EU Since 1 July 2021, the VAT One Stop Shop (OSS) scheme has made it easier for e-commerce and dropshipping businesses to comply with EU tax rules. Here’s how it works: Sales below the EU threshold: Businesses declare and pay VAT in their home country (for example, a French business charges and pays VAT in France). Sales above the threshold: Once sales exceed the set limit, VAT must be declared in the customer’s country of residence (for example, a French dropshipper selling to a customer in Germany must pay VAT in Germany). All declarations can be filed through the OSS portal, which centralizes reporting obligations. The Finance Act of 2024: Key Measures for Dropshipping in France To address the rapid growth of e-commerce and new business models like dropshipping, the government introduced the Finance Act of 2024. This law establishes stricter rules and reporting obligations for distance sales, especially when goods are imported from non-EU countries. Dropshipping and VAT Avoidance Previously, many online sellers attempted to avoid VAT by sourcing products directly from suppliers in non-EU countries and shipping them straight to French customers. The Finance Act of 2024 closes this loophole. According to Article 112, I-A and G, when the conditions for import taxation are not met, VAT becomes payable in France and must be covered
10 Challenges Companies Face When Expanding to France
Thinking of starting operations in France? Read about 10 challanges companies face when expanding to France and their solutions.
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)
How to Stay Compliant with the EU AI Act
Artificial intelligence is transforming industries at an unprecedented pace, offering innovative solutions across healthcare, finance, education, and beyond. However, these advancements also bring risks, from unintentional bias and privacy breaches to systemic harm. The EU AI Act provides the first comprehensive regulatory framework worldwide, ensuring that AI technologies are developed and deployed responsibly. This blog provides with a summary for EU AI Act, timeline for implementation, and specifics for HRAIS, General Purpose AI Models and Foundation Models. Why Do We Need Laws on AI? As AI technologies become increasingly powerful and widespread, they bring both tremendous opportunities and significant risks. Without clear regulations, AI systems could be misused, cause unintentional harm, or operate in ways opaque to users and regulators. The EU AI Act establishes a clear, risk-based framework to protect individuals, businesses, and society from threats such as bias, misinformation, and privacy breaches. It also builds trust and accountability, ensuring AI developers and deployers follow ethical and legal standards. Who Is Affected by the EU AI Act? The EU AI Act applies to all actors in the AI ecosystem: providers, deployers, importers, distributors, and product manufacturers. In practice, anyone developing, using, importing, distributing, or manufacturing AI systems in the EU falls within its scope. Importantly, the EU AI Regulations also have extraterritorial reach: providers and deployers located outside the EU must comply if their AI systems are intended for use within the EU. The regulation defines “AI systems” broadly, covering machine learning, statistical approaches, and symbolic reasoning. This ensures that both advanced generative models and traditional rule-based AI are included. Timeline for Implementation The EU AI Act entered into force on 1 August 2024 and becomes fully applicable on 2 August 2026. A phased rollout applies: Rule Date Prohibitions on certain AI practices, plus obligations related to AI literacy, come into force 2 Feb. 2025 Governance framework and obligations for general-purpose AI (GPAI) models apply. 2 Aug. 2025 Providers of high-risk AI systems embedded into regulated products have a longer transition period to comply. 2 Aug. 2027 Understanding the Risk-Based Framework The EU AI Act categorizes AI systems into four levels of risk: Unacceptable risk: certain practices are strictly prohibited, such as manipulative or deceptive AI, social scoring, untargeted facial recognition scraping, or emotion recognition in workplaces and schools. High risk: systems with serious implications for safety or fundamental rights, such as AI in medical devices, recruitment, education, law enforcement, border control, or judicial decision support. These are subject to the strictest obligations. Limited risk: systems like chatbots or generative AI tools must meet transparency requirements, ensuring users know when they interact with AI. Minimal or no risk: most everyday applications, like video games or spam filters, which are exempt from regulatory requirements. Compliance Requirements for High-Risk AI Systems Providers of high-risk AI systems (HRAIS) must implement safeguards throughout the system’s lifecycle. These include: Establishing a risk management system to identify and mitigate risks. Ensuring strong data governance and high-quality training datasets. Preparing detailed documentation and logging mechanisms. Providing transparency about the system’s capabilities and limitations. Guaranteeing human oversight, so operators can supervise and intervene if needed. Ensuring accuracy, robustness, and cybersecurity against errors and threats. Setting up a quality management system for internal compliance. Conducting post-market monitoring and reporting serious incidents within 15 days. Before deployment, providers must complete a conformity assessment, affix CE marking, and register their system in the EU’s central database. Deployers (users) also face obligations: in some cases, they must conduct a fundamental rights impact assessment (FRIA), follow the provider’s instructions, monitor operation, and keep system logs. Bringing a High-Risk AI System to Market The compliance process follows four main steps: Develop the system – design with risk and compliance in mind. Conformity assessment – verify compliance, sometimes with the involvement of a notified body. Registration – record the system in the EU database. Declaration and CE marking – sign a declaration of conformity before market launch. Any substantial modification to the AI system requires reassessment. General Purpose AI and Foundation Models General-purpose AI (GPAI) models like ChatGPT, Gemini, or DALL·E face obligations mainly around transparency: preparing technical documentation, ensuring compliance with copyright law, and providing summaries of training data. The Act also introduces rules for foundation models trained on large datasets. Some of these are designated as systemic risk foundation models, given their potential impact across multiple sectors. They face enhanced obligations, including rigorous model testing (such as red-teaming), systemic risk assessments, detailed regulatory reporting, strong cybersecurity, and even monitoring of energy efficiency. Penalties for Non-Compliance Non-compliance with the EU AI Act carries heavy sanctions: fines of up to €35 million or 7% of global annual turnover, depending on the type and severity of the violation. This makes compliance not just a legal necessity but a business-critical priority. Beyond the AI Act: Interplay with Other EU Laws The EU AI Act does not exist in isolation. It interacts with other key frameworks, including the GDPR (data protection), the Cyber Resilience Act (security), and the Product Safety & Machinery Regulation (for AI embedded in physical goods). You can read more about how to stay compliant with the GDPR here. A successful compliance strategy must therefore be holistic, covering all these areas. The EU AI Act is a landmark regulation: the first of its kind to establish a risk-based, trust-driven approach to AI. It balances innovation with protection, ensuring that harmful practices are banned, high-risk applications are tightly regulated, and transparency is guaranteed for general-purpose AI. For businesses, compliance is not optional. Those that act early will not only avoid penalties but also position themselves as trusted leaders in responsible AI.
A Practical Guide to Audit Documentation for Companies in France
When your company grows, restructures, or raises capital, several strategic operations may require the involvement of a statutory auditor (commissaire aux comptes). In France, these procedures are not just administrative formalities. They are essential steps to ensure transparency, protect shareholders, and build investor confidence. Yet, each type of audit or legal operation comes with its own set of required documents — often involving inputs from lawyers, chartered accountants, and management teams. This guide outlines the key documents you may need to prepare for the main types of audit engagements: statutory audits, contribution audits, transformation audits, merger audits, and equity operations. Statutory & Contractual Audit The statutory audit aims to ensures the accuracy and reliability of the annual financial statements. A contractual audit, on the other hand, is a voluntary engagement designed to strengthen investor confidence or prepare for a strategic transaction. Appointment: Statutory audit: appointed at the general assembly for six financial years. Contractual audit: freely chosen by the management or general assembly. Documents to be prepared* Sources Annual financial statements and appendices Chartered accountant Balance sheets, ledgers, journals Chartered accountant Intermediate financial statements Chartered accountant Minutes of general and board meetings Lawyer / Client Updated articles of association and shareholders agreement Lawyer Significant contracts Client Bank statements and confirmations Client / Chartered accountant Fixed asset register Chartered accountant Inventory, stock, and depreciation tests Client / Chartered accountant Tax declarations (corporate tax, VAT, etc.) Chartered accountant HR: DSN filings, registers, employment contracts Client Capitalization table and Shareholders’ register Lawyer / Client Legal disputes and lawyers’ attestations Lawyer Management representation letter Client *Non exhaustive list Contribution Audit The contribution auditor verifies the value of assets contributed (real estate, securities, business assets). This process helps protect shareholders and provides assurance to third parties regarding the fairness and accuracy of the valuation. Appointment: By unanimous agreement of the partners/shareholders, or failing that, by court order from the president of the commercial court. Documents to be prepared* Sources Draft articles of association including contributions Lawyer Valuation note / internal report Client / Chartered accountant Expert reports or third-party valuations Lawyer / Client Property deeds, notarized acts, Kbis extract Lawyer Financial statements (N-2 to N) Chartered accountant Capitalization table / Shareholders’ register Lawyer / Client Related contracts (leases, commercial agreements, etc.) Client Statement of debts linked to the asset Lawyer / Client Tax history (capital gains, depreciation) Chartered accountant Preparatory minutes of shareholders meetings Lawyer *Non exhaustive list Transformation Audit When a company changes its legal form (for example, from an SARL to an SAS) and does not have a statutory auditor (CAC) in place, an auditor must certify that the company’s equity is greater than or equal to its share capital. Appointment: By unanimous decision of the partners/shareholders, or failing that, by court order from the president of the commercial court. Documents to be prepared* Sources Draft articles of association post-transformation Lawyer Current articles of association and Kbis extract Lawyer Financial statement (less than 3 months old) Chartered accountant Statement of shareholders’ equity Chartered accountant Capitalization table / Shareholders’ register Lawyer / Client Draft minutes of transformation meeting Lawyer Statement of off-balance sheet commitments Lawyer / Client *Non exhaustive list Merger Audit During a merger, the auditor reviews the fairness of the share exchange ratio and ensures the protection of minority shareholders. Appointment: By court order from the president of the commercial court, unless all partners/shareholders of the companies involved unanimously agree to waive the requirement. Documents to be prepared* Sources Draft merger agreement Lawyer Draft amended articles of association Lawyer Management reports Lawyer / Client Annual financial statements (N-2 to N) Chartered accountant Interim financial statements Chartered accountant Valuations / due diligence reports Lawyer / Chartered accountant Minutes of corporate bodies Lawyer Statement of debts and off-balance sheet commitments Client Employee representative body (CSE) information/consultation Client Intragroup agreements Lawyer *Non exhaustive list Equity Operations In operations involving capital increases, fundraising, or the issuance of securities (BSPCE, BSA, OC, AGA, SO), the auditor ensures: the fairness of the valuation, the removal of pre-emptive subscription rights (DPS), and the protection of minority shareholders. Appointment: In-kind contributions / special benefits: by unanimous decision of the partners/shareholders, or by court order from the president of the commercial court (PTC) if unanimity is not reached. Removal of DPS / issuance of reserved securities: auditor appointed by court order from the PTC if no statutory auditor (CAC) is in place. Documents to be prepared* Sources Management report justifying the operation Lawyer / Client Draft amended articles of association Lawyer Pre-/post capitalization table Chartered accountant / Client Business plan, financial forecasts Chartered accountant / Client Term sheet / Shareholders’ agreement Lawyer In-kind contribution file Lawyer / Client Draft general assembly resolution Lawyer Annual financial statements (N, N-1, N-2) Chartered accountant Tax notes (share premium, BSPCE, etc.) Chartered accountant / Lawyer Issuance contracts (OC, BSPCE, etc.) Lawyer *Non exhaustive list Preparing the right documentation is one of the most effective ways to ensure that your audit or legal operation runs smoothly. Each type of audit, whether statutory, contribution-based, or linked to equity transactions, serves a different purpose, but they all share a common goal: securing your company’s growth with transparency and accuracy. At Reawave, our mission is to simplify these processes for you. By coordinating with your legal, accounting, and management teams, we turn complex compliance requirements into efficient, value-adding steps that build trust and strengthen your company’s financial credibility. Book a meeting today to get a personalized checklist for your next audit.
Exploring the Types of Entities in France: A Guide for International Businesses
In this guide, we’ll explore the main types of legal entities in France, highlight their key features, and help you determine which structure best aligns with your goals.