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France introduces new Action 13 transfer pricing documentation requirements

France introduces new Action 13 transfer pricing documentation requirements

Auteurs : Terence WILHELM, Attorney at Law, Managing Partner of CARA Avocats, France
Publié le : 29/01/2018
This is a reversal of matters. After disappearing from the draft version, the final release of the Finance Bill for 2018 (published December 31, 2017) revises the previously applicable transfer pricing documentation requirement. Companies falling within the ambit of the requirement now need to provide the tax administration with a twofold document combining an Action 13-type of Masterfile and a Local file.

This new requirement is by far less ambitious than the initial draft and to some extent, deviates one inch from the OECD format. Notably, it does not entail the communication of (i) a description of the individuals to whom local management reports and the country(ies) in which such individuals maintain their principal offices; and (ii) the list of the key competitors. Yet, it must be stressed that this new requirement makes it mandatory to have benchmarking studies prepared to support the arm’s length nature of the intercompany transactions being documented. The previous documentation requirement only suggested such benchmarking studies be provided in case the nature of the transactions commanded so. Therefore, several taxpayers used to simply refer to best practices or even the EUJTPF studies when it came to support intercompany services.

Aside of the content of the files, the new requirement does not lead to revising the scope or the penalty applicable in case the taxpayer fails to provide a full and compliant twofold report on time. As a reminder, the requirement applies to (i) companies achieving total net sales or recording gross assets above 400M euros at year end; (ii) that are owned by such company; (iii) own more than half of the shares of such company; or (iv) are part of a tax consolidation regime in which one of the member would fall within that ambit. The penalties can reach the highest of either (i) 0.5% of the intercompany transactions not being documented or 5% of the total reassessments notified in the field of transfer pricing, without falling below a 10,000 euros fine per year.

This new requirement is applicable to fiscal years starting January 1st, 2018 onward. This means the taxpayer can still document the fiscal years that are open to tax audit based on the previous format and content. Yet, it is highly recommended to start replicating this new model, at least to spare efforts for the future and enhance homogeneity with those reports prepared in the other jurisdictions where Action 13 has been adopted.

With this reform, France takes one step forward in the BEPS implementation program. This new requirement however leaves holes, notably for what touches upon the language in which these files will need to be drafted, or the materiality threshold to consider “important transactions”. A decree should however be published in the coming months to provide further guidance.

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