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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.
 The French transfer pricing rules are articulated around 4 sections of the French tax code "CGI" in line with the OECD principles. French tax treaties are very similar with OECD treaty model
 Section 57 of the French tax code "CGI"
Section 238-A CGI
Section L 13 B of the French procedure code "LPF"
Section L 188 A LPF
Section 9 of the tax treaties signed by France
Section 57 CGI provides the French transfer pricing rules (Unofficial translation not suited for legal works and/or tax analysis):
In order to assess the corporate income tax owed by enterprises under the dependence of, or having control of enterprises located outside France, the profit indirectly transferred to these enterprises, either by means of overcharge or discount of the selling price or the purchasing price, or by any other way, are added to the book results.
The same rules apply to the enterprises under the dependence of another enterprise or group of enterprises having also the control of enterprises located outside France.
The dependence or the control is not requested when the transfer is done with an enterprise established in a foreign country or a territory outside France which tax regime is considered as a tax haven as stated in section 238A second paragraph. If there is no answer to a request made according to section L 13 B of the procedure code, the related tax basis will be estimated by the tax authorities from the data at her disposal and according to the contradictory procedure as stated sections L 57 through L 61 of the procedure code.
If no precise data exist to make the tax assessment as stated above paragraph one, two and three, the taxable profit is calculated by comparison with profit of similar enterprises normally operated.
Section 238-A CGI provides the French transfer pricing rules for services, interest, and royalties paid to beneficiaries resident in tax havens (Unofficial translation not suited for legal works and/or tax analysis):
Interest, arrears and other proceeds of bonds, receivables, deposits and guarantees, royalties for the assignment or license of patents, trademarks, processes or manufacturing formulas and other similar rights, or compensation for services, paid or owned by an individual or an entity domiciled or established in France to individuals or entities domiciled or established in a foreign state or in a territory situated outside France and there benefit of a privileged tax status, are tax deductible only if the debtor proves that these payments are related to valid transactions and are not abnormal or exaggerated. In applying the first paragraph, individuals or companies are deemed to benefit of a privileged tax status in the considered foreign country or territory if they pay no tax or are liable to taxes on profits or income at a substantially lower rate than in France. The provisions of the first paragraph also apply to any payment made to an account with a financial institution established in one of the states or territories to which reference is made in that same paragraph.
Section L 13B LPF states the documentation which may be requested by the tax authorities during a tax audit to review the transfer prices (Unofficial translation not suited for legal works and/or tax analysis):
When, as part of a full audit of books and records (to know more about this subject check "Audit", the tax authorities gather evidence that the enterprise made an indirect transfer of profits, as stated in § 57 CGI, they may request from this enterprise data and documents explaining:
1° The kind of link, as stated in section 57 CGI, between this enterprise and one or several enterprises managed outside France, or companies or group established outside France;
2° The method to calculate the price of industrial, commercial or finance operations made with the enterprises, companies or group as mentioned §1°, and the supporting elements plus, as needed, the agreed counterparts;
3° The activity of the enterprises, companies or group as mentioned §1°, connected to the operations mentioned § 2°;
4° The tax treatment of the operations mentioned § 2° and realized by the enterprises it manages outside France or by the companies and group as stated § 1° which it controls directly or indirectly the majority of the capital or voting rights. The requests listed § 1° must be precise and indicate explicitly, by nature of activity or by product, the country or the territory involved, the enterprise, the company or the group targeted, and as needed, the amounts at stake. The requests must, on top of that, indicate to the audited enterprise, the time to answer the questions. This time, which cannot be shorter than two months,
may be extended upon justification without exceeding a total of three months.
When the answer of the enterprise is not sufficient, the tax authorities mail a formal demand to complete its answer within a 30-day period, precising what must be clarified. This formal demand must mention the applicable penalties in case of failure of answer. The French tax authorities issued official guidelines about section L 13B LPF on July 23, 1998 ( Bulletin Officiel des impôts 13 L-7-98 dated July 29, 1998).
The French tax authorities issued official guidelines about section L 13B LPF on July 23, 1998 ( Bulletin Officiel des impôts 13 L-7-98 dated July 29, 1998).
Section L 188 A LPF provides the statute of limitation if the French tax authorities contact the tax authorities of other countries to collect information on a French taxpayer (Unofficial translation not suited for legal works and/or tax analysis):
When the French tax authorities have requested information from the competent tax administration of another state or territory, before the end of the initial statute of limitations, concerning:
either the relationship of a taxpayer, falling within the scope of section. 57 or 209B of tax code, with an enterprise, a company or joint venture operating an activity or established in that state or territory, or
the foreign assets, estate or income available to the French taxpayer or the activities he may have performed outside France, or
both categories of information, any related omissions or insufficient taxation may be corrected, even if the initial statute of limitations has expired, up until
the end of the year following the year when the information requested is obtained and, at the latest, at the end of the fifth year following the year being audited.
This article applies subject to the provisions of section L. 186 and provided that the taxpayer was informed about the information request at the time it was formulated and about the reply of the competent administration of the other state or territory at the time when the said reply was received by the tax authorities. (These provisions apply to audits initiated as from the date of entry into force of Law 96-314 dated April 12, 1996, JO dated April 13, 1996.)
Section 9 of tax treaties signed by France uses a wording close from section 9 of the OECD tax treaty model about related parties (e.g. section 9 of French - USA 1994 tax treaty below)
France reserves the right to specify in their conventions that it will proceed to a correlative adjustment link (to know more about this subject check "Definitions") if they consider this adjustment to be justified. Article 9 - Associated Enterprises
1. Where:
(a) an enterprise of a Contracting State participates directly or indirectly in the management, control, or capital of an enterprise of the other Contracting State;or
(b) the same persons participate directly or indirectly in the management, control, or capital of an enterprise of a Contracting State
and an enterprise of the other Contracting State, and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which, but for those conditions, would have accrued to one of the enterprises, but by reason of those conditions have not so accrued, may be included in the profits of that enterprise and taxed accordingly.
2. Where a Contracting State includes in the profits of an enterprise of that State, and taxes accordingly, profits on which an enterprise of the other Contracting State has been charged to tax in that other State, and the other Contracting State agrees that the profits so included are profits that would have accrued to the enterprise of the first-mentioned State if the conditions made between the two enterprises had been those that would have been made between independent enterprises, then that other State shall, in accordance with the provisions of Article 26 (Mutual Agreement Procedure), make an appropriate adjustment to the amount of the tax charged therein on those profits. In determining such adjustment, due regard shall be paid to the other provisions of this Convention.
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