First, it should be noted that the French transfer policy rules comply with the Organisation for Economic Co-operation and Development (OECD) TP Guidelines. Moreover, the French TP documentation rules are drawn from the Code of Conduct adopted by the European Union (EU), whereby two levels of information need to be provided to the tax authorities: i) general information on the group of companies, and ii) specific information on the French taxpayer.
As afore-mentioned, the 2016 Finance Law includes two new obligations which apply from 1 January 2016. Taxpayers must transmit electronically their annual transfer pricing simplified declaration as defined by Article 223 Quinquies B of the French Tax Code, whereas only a hard copy was required to be transmitted up to now. This will improve the ability of the French Tax Authorities to compile information and to efficiently use this information as a management risk warning for further planning of TP audits.
Nevertheless, the only really new tax feature implemented by the 2016 Finance law is the obligation of taxpayers – generating an annual consolidated group revenue superior or equal to EUR750 million – to provide a country-by-country (CbC) report of profit distribution as defined by Article 223 Quinquies C of the French Tax Code. This report must be filled electronically within the 12 month period following the end of the financial year for annual financial statements relating to fiscal years beginning on or after 1 January 2016. If this obligation is not met, taxpayers can be fined up to EUR 100. Taxpayers who can demonstrate that Surrogate Parent Entity has filed the CbC report in another country will be released from this obligation.
The French provisions are fully compliant with the BEPS Action 13 recommendations even though the enactment process has given rise to intense debate because some parliament members wanted to make public part of the report, but the French Parliament censured the proposal and CbC reporting will remain for tax authorities’ eyes only.
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In summary, multinational enterprises (MNEs) should prepare global transfer pricing documentation, while simultaneously improving the ability of tax authorities to make better informed risk assessments and to conduct better targeted transfer pricing audits. However, it is clear that there is a strong commitment to these changes and this will represent a significant shift to the way in which MNEs currently prepare and renew transfer pricing documentation.
In particular, MNEs should use the process of FY 2015 information collection to prepare for the first CbC filing in 2017 on FY 2016 data.
