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Overview of Transfer Pricing in France
Global Business Information Strategies, Inc. , Oct 2008, Pages: 8
France has made great strides in recent years to make its transfer pricing laws and regulations consistent with the latest OECD and EU guidelines. Under one provision of these rules, French tax authorities will automatically assume there is an unlawful transfer of profits when they can show a link of dependence between a company in France and a company that is engaging in transactions that are not at arm’s-length pricing.
In cases where the other party is in a low-tax country, the link of dependence does not need to be demonstrated. In both cases, the company can rebut the presumption of unlawful transfer of profits by demonstrating that there is an advantage to them in terms of indirect or future profits associated with the transaction. The French tax authorities are empowered to ask taxpayers to justify their related-party pricing. Failure to do so results in the tax authorities setting the pricing based on comparable transactions.
French law also includes a best method rule for selection of transfer pricing methods based on the preferred methodologies in the OECD guidelines, the Comparable Uncontrolled Profits, Resale Minus, and Cost Plus methods. The Transactional Net Margin Method is also allowed in cases where sufficient comparables to apply one of the first three methods are not available. For practical purposes, the TNMM is the most frequently employed method. Finally, the Profit Split Method is allowed in cases where no other method proves workable. Other profit-based methods allowed in the U.S. are not available in France. While France does not have specific documentation requirements in its laws, it is necessary to provide documentation upon request of the tax authorities or in case of an audit. Also, France is expected to adopt formal documentation requirements in accordance with the Guidelines of the Joint Transfer Pricing Forum in the near future, probably this year.
France has a fully-developed APA program and makes use of Mutual Agreement and Arbitration Procedures to resolve transfer pricing disputes. The article also discusses the burden of proof in transfer pricing cases under French Supreme Court decisions and the French definition of related party, which is based on a link of dependence, as well as some thoughts on the future direction of transfer pricing in France. By Pierre-Jean Douvier and Valérie Bugault, CMS Bureau Francis Lefebvre
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