Transfer pricing: more details on the documentation required
Transfer pricing: who is concerned?
The rules on transfer pricing concern all the French firms engaged in cross-border transactions with firms belonging to the same group.
The issue for the FTA consists in the profits which could be transferred to other countries with a more favorable taxation through the other companies of the group.
In order to prevent these practices, the firms are obliged to charge “arm’s length prices” in transactions with the other companies of the group and to be able to document it (article 57 of the General Tax Code).
The firms fulfilling at least one of the conditions below must submit a transfer pricing declaration (n°2257-SD):
- Their turnover before tax or gross assets is over 50 million euros (400 million euros for the financial years ending until December 31st, 2016)
- They own more than 50% of the social capital or of the voting rights of a legal entity filling the previous criteria, or owned for more than 50% of the social capital or of the voting rights by a legal entity filling these conditions
- They belong to a tax consolidation group (article 223 A of the General Tax Code) including at least one legal entity filling one of the previous conditions.
The companies belonging to the groups with a consolidated turnover over 750 million euros are also obliged to submit a transfer pricing declaration per country (n° 2258-SD).
In 2010, the transfer pricing documentation requirements to deliver to the administration in case of tax control appeared for the firms filling at least one of the previous conditions (but the threshold is 400 million euros instead of 50 million euros). The aim is to justify the group transactions are following /normal arm’s length prices (article 13AA of the French Procedural Tax Code).
Reinforcement of the documentation requirements (BEPS project action 13, OECD)
For financial years beginning on or after January 1st, 2018, the required documentation format is made of a master file and a local file.
- The master file (group information) consists of five categories:
- Group’s organization chart (including the description of the supply chain for the five main product and services)
- Description of the field(s) of activity
- Group’s intangible assets
- Group’s financial business to business activities
- Group’s financial and tax status.
- The local file (audited company) contains the following elements:
- Company’s description of the field(s) of activity
- Functional analysis
- Description of the company’s main international intra-group transactions
- Transfer pricing policy and economic studies explaining this choice
- Copy of the intra-group conventions of the company and information and distribution table linking the financial data and the financial statements.
In case of non-compliance with this rule, the company exposes itself to a penalty. The minimum amount is 10 000€ but it could reach the greater of:
- 0,5% of the amount represented by the non-documented transactions
- 5% of the amount of the tax corrections related to the transfer pricing concerned by the non-documentation or the partial documentation.
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