The French tax authorities published in September guidelines on the new “regularization” procedure (resulting from the Second Amending Finance Act for 2014, codified under Article L. 62 A of the French Book of Tax Procedures), which can be requested by taxpayers to eliminate the withholding tax applied to profits transferred within the meaning of Article 57 of the French Tax Code (transfer pricing) or to income mentioned in Article 238 A of the French Tax Code (payments to persons benefiting from a preferential tax regime) and categorized as income distributed to related entreprises (BOI-CF-IOR-20-20150902, Sept. 2, 2015).
These guidelines specify that the regularization procedure allows one to eliminate the relevant withholding taxes as well as related penalties, and they clarify how the procedure is implemented:
- As regards the regularization request: the tax authorities list the information the request must include and provide a template. The relevant withholding tax adjustments covered by the request must be explicitly identified, otherwise they will not be eliminated. The request must be made after the tax reassessment notice and before the withholding tax adjustments have gone into collection. The tax authorities specify that this procedure may be requested after a request for regularization made pursuant to Article L. 62 of the French Book of Tax Procedures, which would take place before the tax reassessment notice.
- As regards acceptance of tax adjustments and related penalties: the tax authorities state that acceptance must be explicit and without reserve. As adjustments and penalties may be modified over the course of the procedure, the regularization request concerns either tax adjustments set forth in the tax reassessment notice or tax adjustments which are upheld after the various administrative appeals. Acceptance can cover only certain eligible tax adjustments and can exclude those for which notice is given on grounds other than Article 57 or 238 A of the French Tax Code.
- As regards repatriation within 60 days of amounts categorized as distributed income: in the absence of any specification in the French Tax Code, the tax authorities consider that the 60-day period is calculated as of the tax authorities' date of acknowledgment of receipt of the request, and that repatriation must take place through an effective repayment of the relevant amounts to the company's accounts or upon extinguishment of a debt. However the tax authorities exclude the possibility of booking a receivable or a capital contribution or current account contribution to the benefit of the audited company. Moreover the tax authorities indicate that, in order to prove that the amounts have been effectively repatriated, the taxpayer must provide an extract of the bank account statement showing the credit to the company's account, as well as an extract of the accounting reporting the operation.
- As regards the location of the beneficiary of the amounts categorized as distributed income: amounts deemed distributed to beneficiaries located in a non-cooperative State or Territory (NCST) are excluded from this procedure. The tax authorities specify that the relevant NSCT list is the one relating to the period during which the income is categorized as distributed income.
Lastly, the tax authorities state that the repatriated funds are not deemed taxable income.