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This chapter is not exhaustive and is limited to broadly outline the tax consequences of the main events occurring when doing business in France. It does not constitute a tax advice or a client - attorney relationship. Materials are not suitable for tax analysis. Visitors are invited to consult a tax lawyer before taking any decision.
French Revenue published on February 23, 2006 guidelines 14 F-1-06 with fully up-dated commentaries on mutual agreement procedure and the arbitration convention complying with the recommendations of the code of conduct (See below) adopted by the EU Council on June 27, 2006.
The French tax rules do not request documentation of the transfer prices contemporaneous of the tax return nor a specific yearly transfer pricing filing.
However the tax law provides that during a tax audit the related parties must be able to answer precisely the questions listed below in a 2-month period:
Method used to calculate transfer prices (to know more about this subject check "Establishment of transfer prices")
 Legal, economic and management relationship between the French entity and any foreign entity.
Activity of the foreign related parties.
Tax regime of the foreign related parties.
Upon acceptable justifications, the French tax authorities may accept to extend one month the initial two months period. The maximum period never exceeds 3 months.
If the entity do not answer or provide an answer which is not clear enough, two penalties may be applied:
7,500 euros penalty for each tax year under audit.
French tax authorities are allowed to estimate the profit transferred abroad using only the information collected by the tax authorities.
As a two or three months period is most of the time too short to develop and support afterwards a consistent transfer pricing method, it is highly recommended to develop a contemporaneous transfer pricing documentation.
European Union – Code of conduct
On June 27, 2006 the EU Council adopted the Code of Conduct on transfer pricing based on the work of the EU joint transfer pricing forum. The Code standardizes and partially centralizes the documentation that Multinational Companies have to provide to tax authorities to support the pricing of their cross-border intra-group transactions.
The code of conduct provides that Multinational Enterprises "MNE" must make available to tax administrations a "Master file" containing a "blue print" of the company and its transfer pricing policy. The Master file is common to all EU Member States concerned and written in a commonly understood language for the EU Members States at stake. In addition, MNE must prepare a "country specific documentation" for each specific EU Member States involved in intra-group transactions. This document must be written in a language prescribed by the EU Member State concerned. The code of conduct is not binding and contains only recommendations.
However, it is likely that the EU Member States will recognize documentations prepared accordingly.
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