France

TP audit guide

An introductory chapter providing an overview of France's transfer pricing policies in the past year, by Grégoire de Vogüé and Julien Pellefigue of Taj, Société d'Avocats, a member of Deloitte Touche Tohmatsu.

Market overview

The tax authorities in France have an aggressive reputation among taxpayers, both domestically and internationally. In previous editions of World Transfer Pricing it was noted that there has been an increasing tendency in France for tax matters to become criminal issues, and a series of raids during the first six months of 2016 on large multinationals' offices in the country have only compounded this impression.

When it comes to the issue of transfer pricing in France and what kind of structures to adopt or avoid, Guillaume Valois of DLA Piper in France said: "What we tell our clients is to perform audits of their structure and their business organisation and how they operate in Europe, and in France in particular, and make a validity check on what is in place. And in light of what we know about the priorities of the French authorities and what we know about their new approach on these issues, see how, based on these audits, they can improve their structure or reorganise their structure in order to be prepared for any discussions with the French authorities."

The authorities are willing in France to engage in pre-filing informal meetings to discuss the relative strengths of a company's transfer pricing arrangements, according to Caroline Silberztein, Baker & McKenzie's co-head of transfer pricing.

"Whenever we call them [the tax authorities] to have a preliminary, pre-filing meeting to discuss informally a particular case, we have always had a positive response," she said.

Having their arrangements accepted in advance by the authorities can be more difficult for multinationals however, with the authorities seemingly reluctant to accept advance pricing agreements (APAs).

"If you are a large multinational you can go to the tax authorities and present a structure and get their opinion on whether it is legitimate, this is standard, this is almost daily practice. What you cannot do is go to them and get their blessing for setting up an overtly aggressive, almost fictional tax structure that would have the effect of shifting profits out of France. This they will not do for you," said Vincent Daniel-Mayeur, head of tax at Freshfields Bruckhaus Deringer.

France has been a fast mover when it comes to implementing of all aspects of the BEPS proposals. This is especially seen in the action points on transfer pricing (Actions 8-10) due to its domestic transfer pricing rules already referencing the OECD's guidelines. This means that the new recommendations were applicable immediately after the OECD formally adopted them.

"I think France is certainly one of the countries that has tried to implement the BEPS recommendations as fast as possible. So therefore, the environment is difficult in France. Clearly, the tax pressure is not going down, and actually we have seen an increase in our activity with respect to tax audits and litigation, as a result of this fast implementation," said Hervé Israël of DLA Piper.

The recent spike in audits and raids looks unlikely to subside according to Israël. Other advisers have pointed out that, there seems to be something of an effort on the behalf of the tax revenue service to make examples out of certain large multinationals that they consider to be abusing the tax law.


Tax authorities

Ministry for the Economy and Finance
Télédoc 151
139, rue de Bercy
75572 Paris Cedex 12
Tel: +33 1 40 04 04 04
Website: www.economie.gouv.fr


Tax rates at a glance

(As of April 2016)

Corporate income tax 33⅓% (a)
Capital gains tax 0/15/33⅓% (a)
Branch tax rate 33⅓%
 
Withholding tax
Dividends 30/75% (b)(c)(e)
Interest 0/75% (b)(e)(f)
Royalties 33⅓/75% (b)(e)(f)
 
Net operating losses (years)
Carryback 1 (h)
Carryforward Unlimited (i)

  1. For resident companies, surtaxes are imposed on the corporate income tax and capital gains tax.
  2. These are the withholding tax rates under French domestic law. Tax treaties may reduce or eliminate the withholding taxes.
  3. Under the European Union (EU) Parent-Subsidiary Directive, dividends distributed by a French subsidiary to an EU parent company are exempt from withholding tax, if, among other conditions, the recipient holds or commits to hold at least 10% of the subsidiary's shares for at least two years.
  4. The withholding tax rate is 75% for distributed profits paid into uncooperative states.
  5. No withholding tax is imposed on interest and royalties paid between associated companies of different EU member states if certain conditions are met.
  6. The withholding tax rate is 75% for interest on qualifying borrowings and royalties paid into uncooperative states.
  7. Branch remittance tax may be reduced or eliminated by double tax treaties. It is not imposed on French branches of companies that are resident in EU member states and are subject to tax in their home countries.
  8. Losses carried back may not exceed €1 million.
  9. The amount of losses used in a given year may not exceed €1 million plus 50% of the taxable profit exceeding this limit for such year.

Source: EY 2016 Worldwide Corporate Tax Guide


Firm contact details

Taj, Société d'Avocats