The Anti-Tax Evasion Act and the Finance Act 2014 have introduced an annual transfer pricing documentation filing obligation and new disclosure requirements for large companies.
Since 2010, French companies that have an annual turnover or gross asset value exceeding €400 million, are related to a French or foreign entity exceeding one of these thresholds or are part of a French tax consolidated group that includes a company exceeding one of these thresholds, are required to prepare a full transfer pricing documentation package to be made available to the French tax authorities during a tax audit. Previously, this documentation was often prepared only to the extent requested by the French tax authorities.
Under new regulations introduced by the Anti-Tax Evasion Act and the Finance Act 2014, these companies are now required to file simplified transfer pricing documentation annually, within the six month period following the deadline for filing corporate income tax returns. French companies are also now required to make available to the French tax authorities, during a tax audit, their cost accounting statements and consolidated accounting statements (as appropriate), the tax rulings granted to non-French affiliates (as appropriate) and soft copies of electronic financial statements.
Simplified Transfer Pricing Documentation to be Filed Annually
This new requirement applies to large companies (as defined above) that were already required to provide transfer pricing documentation during a tax audit.
The relevant transfer pricing documentation is a simplified version of the full transfer pricing documentation package that those companies are required to provide during a tax audit.
This simplified transfer pricing documentation must include the following information:
General information about the group the French company is part of, including an overview of the business carried out by the group, a list of the main intangible assets used in the French company’s business and a description of the transfer pricing policy of the group and any changes to this policy during the fiscal year.
Specific information about the French company itself, including an overview of the business carried out by the company; list of intragroup transactions with related entities that are not established in France, where the aggregate amount paid or received per type of transaction exceeds €100,000; and presentation of the main transfer pricing method(s) used by the company and any changes to these method(s) during the fiscal year.
In practice, as French companies are audited by the tax authorities on a regular basis, those that fall within the scope of this new requirement should consider preparing and filing full documentation every year, rather than a simplified version, in order to avoid being required to prepare two different versions of transfer pricing documents in the event of an audit.
This new requirement applies to fiscal years for which the deadline for filing tax returns is on or after 8 December 2013. For example, for fiscal years that ended on 31 December 31 2013, the simplified documentation will have to be filed by 5 November 2014.
Failure to file the simplified documentation annually triggers a €150 fine and any omission or inaccuracy incurs a €15 fine per omission or inaccuracy, up to a limit of €10,000. A failure of this size may, however, raise the attention of the French tax authorities.
Additional New Requirements Applicable During Tax Audits
Disclosure of Cost Accounting and Consolidated Statements at the Request of The French Tax Authorities
Large companies that were already required to provide full transfer pricing documentation during a tax audit are now also required to disclose their cost accounting statements. This new requirement also applies to companies with an annual turnover higher than €76.2 million, or €152.4 million if their main activity is the sale of goods, other items, supplies or food to be taken out or consumed on the premises, or the rental of residential premises; companies that hold, or are held by a company satisfying any of the above criteria; or companies that are part of a French tax consolidated group that includes at least one company satisfying one of the above criteria.
Since the preparation of cost accounting statements is not mandatory, however, only those companies that prepare such statements will be required to disclose them. In addition, any company that is required to prepare consolidated accounting statements under Article L.233-16 of the French commercial code must disclose these to the French tax authorities.
These new requirements, which will apply even if the tax audit does not relate to transfer pricing matters, are applicable to all tax audits notified as of 1 January 2014.
Failure to disclose this information will incur a €1,500 penalty for each audited fiscal year.
Disclosure of Electronic Accounts at the Request of The French Tax Authorities
This requirement applies to all companies that maintain their accounts electronically. The soft copy of the accounts (known as FEC) that these companies are required to provide to the French tax authorities will have to comply with specific format requirements set by the French tax authorities, be prepared in French and be in accordance with French accounting standards (International Financial Reporting Standards or US generally accepted accounting principles standards will not be accepted).
French branches of foreign companies will, however, be allowed to provide their FEC prepared in line with foreign accounting standards, provided they are translated into French.
This new requirement is applicable to all tax audits notified as of 1 January 2014.
Failure to provide the soft copy of their FEC in a compliant format will incur a €1,500 penalty for each audited fiscal year.
It is also worth noting that failure to provide electronic accounts when requested to do so could be regarded as non-compliance with a tax audit. In this case, the French tax authorities would be entitled to adjust the company’s taxable basis unilaterally, based on the information available to them, and claim penalties that could amount to 100 per cent of the adjusted taxes.
Disclosure of Tax Rulings Relevant to Non-French Affiliates
This new requirement applies to large companies (as defined above) that were already required to provide a transfer pricing documentation during a tax audit.
Tax rulings are defined as individual and specific decisions concerning the relevant non-French company, which are binding upon the relevant tax authorities even if not directly related to intra-group transactions.
These tax rulings must be made available at the request of the French tax authorities as part of the full transfer pricing documentation package. In practice, however, French companies may face difficulties in obtaining the tax rulings from their non-French affiliates as these are confidential.
If the French tax authorities wish to obtain information from foreign tax authorities in order to verify the reliability of the information provided by French companies, their request for information will have to comply with the provisions of the relevant double tax treaty.
This new requirement is applicable to transfer pricing documentation related to fiscal years ending on or after 1 January 2014.
Failure to comply with this requirement is sanctionable in the same manner as the failure to provide the full transfer pricing documentation package. Any failure to disclose is therefore punishable by either a €10,000 penalty or, depending on the seriousness of the failure, a penalty that could amount to up to 5 per cent of the net income transferred abroad (if this amount exceeds €10,000), for each audited fiscal year. This fine only applies, however, where, after a formal notice issued by the French tax authorities, the audited company does not provide the requested documentation, or the documentation provided is not complete.