New transfer pricing documentation: Administrative guidelines released

The transfer pricing documentation provided by article L.13 AA of the French tax procedures Code (“Livre des procédures fiscales” in French, or “LPF”) was significantly modified by the Finance Act for 2018 (Art. 107 of the Act n°2017-1837 of 30 December 2017).

The implementing Decree (Decree n° 2018-554 of 29 June 2018 which amends the regulatory part of the LPF) and the administrative guidelines (BOFiP BOI-BIC-BASE-80-10-40) have just been released. The decree and the administrative guidelines both provide substantial specifications on the format and on the content of this documentation which must be applied to financial years starting on or after 1 January 2018. 

The effective implementation of this documentation will be monitored by the French Parliament: As required by the Finance Act for 2018, the Government will have to add a report to the Finance Bill for 2021, on the enforcement of these new requirements by companies.

1. Reminder of the new transfer pricing documentation

The purpose of this reform is to align French rules, which were enacted in 2009, with the new international standard resulting from the works carried out under OECD BEPS Action 13. This new standard already applies in several other countries (Germany, Spain, China, Belgium, etc.).

This documentation, which must only be presented in the case of a tax audit, supplements information already provided by companies to the Tax administration in the context of their reporting obligations:

¹ is also subject to the filing of a return relating to transfer pricing policy (form n° 2257): A legal entity holding directly or indirectly more than 50% of a legal entity whose turnover before tax or gross assets exceeds €50 million, or being held directly or indirectly for more than 50% by a legal entity whose turnover or gross assets exceeds €50 million, or belonging to an integrated group of which one of the companies has a turnover before tax or gross assets exceeding €50 million..

² is also subject to the documentary obligation: A legal entity holding directly or indirectly more than 50% of a legal entity whose turnover before tax or gross assets exceeds €400 million, or being held directly or indirectly for more than 50% by a legal entity whose turnover before tax or gross assets exceeds €400 million, or belonging to an integrated group of which one of the companies has a turnover before tax or gross assets exceeding €400 million.

³ various conditions must be met.

2. The new transfer pricing documentation format

The format of transfer pricing documentation is more restricted than it has been to date.

• Documentation must be dematerialised (Art. R 13 AA-1.I of the LPF)

Transfer pricing documentation should be presented in a dematerialised format. The various data tables in this documentation will have to be presented in a format that would enable the Tax administration to proceed to verifications, sorting or classifications. In practice, this means that the documentation will have to be presented on a digital medium with data tables in excel or equivalent format.

This documentation will not be automatically exchanged with other tax jurisdictions. Indeed, there is no international agreement providing for an automatic exchange of these documents, contrary to what is provided for the Country-by-Country Report (CbCR)

• The content must be structured (Art. R 13 AA-1.II and III of the LPF)

The documentation must comply with a framework and a presentation order. Therefore, the documentation should be divided into two files: A master file with information on the multinational group and a local file with information on the company which is being audited.

Each of the two parts also contains headings, broken down into subheadings, which must be presented in a predefined order:

• The presentation of information in table format is preferred (and sometimes compulsory)

Some pieces of information must be presented in table format while for others, administrative guidelines provide that tables may be used based on indicative models provided.

In practice, these tables are largely based on the tables already provided for (in form n° 2257) on transfer pricing policy (Art. 223 quinquies B of the CGI) or in the CbCR (Art. 223 quinquies C of the CGI).

Therefore, in the master file, the following information can be presented under table format (BOI-BIC-BASE-80-10-40 § 120, 200, 210):

• A list of significant service agreements;
• The capability of the sites providing services (with indications of human and material resources);
• A list of intangible assets or classes of intangible assets that are significant for transfer pricing purposes, identifying the legal entities which own them;
• ​A list of significant agreements between associated companies relating to intangible assets.

The local file contains information which must be presented under table format (Art. R 13 AA-1.III-2 of the LPF; BOI-BIC-BASE-80-10-40 § 380, 440):

• The amounts of intra-group transactions (in practice, this is a table directly inspired by form n° 2257);
• The presentation of the transfer pricing method applied to the transactions.

3. Administrative clarifications on the content of the documentation

The implementing texts provide for a number of specifications on the nature of the information expected by the Administration.

However, in general, administrative guidelines indicate that the new documentation corresponds to the international standard resulting from BEPS, and that the recommendations provided under BEPS works apply to the French documentation.

• Transactions between a head office and its branches must be documented

The content of the master file is very largely identical to the works resulting from BEPS. Administrative specifications consist mainly of clarifications with examples.

On this occasion, it is specified that the description of the supply chain of the group's main goods and services consists solely of an explanation of the main stages leading to the marketing of goods or services, without indication of the value of the various contributions. It is also confirmed, in accordance with OECD recommendations, that no detailed functional analysis of the various group entities is required.

• The content of the local file

The main contributions of the implementing texts concern the description of intra-group transactions and financial information.
Only significant intra-group transactions must be documented and the application texts specify (Art. R.13 AA-1.III-2 of the LPF; BOI-BIC-BASE-80-10-40 § 350) that these transactions correspond to those whose aggregate amount per category (income, expenses, asset variations) exceeds €100 000 during the fiscal year. The categories to be taken into consideration are almost identical to those already provided for in form n° 2257.

Thus, unlike the former documentation which did not contain any clarification on that point, the new transfer pricing documentation must be articulated with form n° 2257.
Furthermore, the heading relating to financial information must include tables (in free format) which reflect the arithmetical consequences of the transfer pricing policy in accounting (Art. 13 AA-1.III -3 of the LPF; BOI-BIC-BASE-80-10-40 § 520).

In practice, the Administration should therefore be in a position to check immediately, on the one hand, the consistency between the information contained in form n° 2257 and in the transfer pricing documentation and, on the other hand, the accounting translation of the transfer pricing policy.