Large enterprises2 are subject to a new requirement to communicate on an annual basis a transfer pricing disclosure form (“TP disclosure form”) to the French tax administration. For a definition of large enterprises falling within the scope of this new obligation, click here.
The French tax administration released on September 16, 2014 the final versions of the TP disclosure form (tax form no. 2257-SD; seeFrench version, see English translation) and guidelines commenting on this new requirement. The TP disclosure form consists of two tables to be filled in with the following information:
- General information on the group of associated enterprises, including:
- Main activities of the group.
- List of intangible assets owned by the group and used by the French reporting enterprise (with nature of the intangibles and country of establishment of the intangible assets owners).The nature of the intangible assets must be reported (e.g. patent, trademark) but it is not necessary to provide the identification of each intangible asset.
- General description of the group transfer pricing policy in relation to the French reporting enterprise.
- Description of the activity with summary of transactions and presentation of transfer pricing methods, including:
- Amounts of transactions carried out with foreign associated enterprises3 where the aggregated amount by nature of transactions exceeds €100,000. The table differentiates several natures of transactions such as incomes (e.g. sales, services, royalties, financial income), expenses (e.g. purchases, services, royalties, financial expenses), acquisitions of assets and sales of assets.
- Countries concerned by the transactions (i.e. country of the associated enterprises).
- Transfer pricing methods applied (tick in the relevant box). It is not necessary to provide mark-up/ profit margin rates or benchmarks in this form.
- Description of changes occurred during the concerned fiscal year if any.
The TP disclosure form must be completed in French and filed with the taxpayer's usual tax bureau.
By exception, the form must be filed by November 20, 2014 for financial years closed between September 2013 and February 2014. For the following periods, the filling date is within six months of the due date for filing the income tax return. For example, the deadline for companies whose fiscal year ends on December 31 will generally be the beginning of November.4
Non-compliance with this obligation will be punishable by a €150 fine for failing to report on time plus €15 by omission or inaccuracy, in the limit of €10,000.
For a comprehensive description of French transfer pricing documentation requirements click here.
1. Contents of the TP disclosure form:
The information requested in the TP disclosure form exceeds to some extent the scope of what is required under Article 223 quinquies B of the French tax code. For example, the requirement to disclose the “country of establishment of the intangible assets owners” adds to the law which requires “a list of main intangibles owned including patents, trademarks, trade names and know-how, in relation to the enterprise”.
2. Remaining uncertainties:
Some areas of uncertainty remain in our view:
- The notion of "country of establishment" of the intangible asset owner may raise questions in case of permanent establishments, non resident or dual resident entities.
- Transactions the aggregated amount of which is below €100,000 do not need to be reported. In this respect, the definition of transactions and the aggregation rule are unclear. The administrative guidelines indicate that where ten service transactions are performed for €11,000 each, one will consider the aggregated amount of €110,000. Similarly where a French enterprise sells products for €500 million to associated enterprises in three different countries, the administrative guidelines indicate that it will be regarded as a single aggregated transaction. This may be controversial in practice for example where the sales to these three countries are subject to differing transfer pricing method or benchmarks.
- The notion of "main transfer pricing method" to be ticked for each kind of transaction carried out by the French reporting entity is not defined, nor are the applicable criteria to determine which method should be regarded as the main one where aggregated amounts for a given nature of transaction involve different methods.
While electronic filing (télédéclaration) is being considered, the administrative guidelines do not provide any detail in this respect. Based on our information, an electronic platform does not seem to be ready yet and in practice filing will likely need to be done on electronic support or via paper copies.