The 2024 Finance Law, passed on December 29, 2023, introduced new measures to extend and strengthen French transfer pricing documentation requirements.
More specifically, the measures introduced by the Finance Law 2024 are as follows:
- Decrease of the threshold for the application of the French transfer pricing documentation requirements (article L. 13 AA of the French Tax Procedure Code);
- Strengthening of enterprises’ bindingness to transfer pricing policies set forth in their documentation (article 57 of the French Tax Code);
- Increase of the minimum fine applicable in case of failure to provide a compliant or complete transfer pricing documentation upon French tax authorities' request (article 1735 ter of the French Tax Code).
Scope of the French transfer pricing documentation requirements – Decrease of the threshold
Article L. 13 AA of the French Tax Procedure Code provides that only companies exceeding a certain threshold, or those owning or being owned directly or indirectly by companies exceeding the same threshold, are subject to transfer pricing documentation requirements.
The 2024 Finance Law has decreased the initial threshold of €400 million in turnover or total gross assets to €150 million for all fiscal years starting on or after January 1st, 2024.
This major decrease of the threshold significantly extends the number of French companies that will have to prepare a proper transfer pricing documentation. For this reason, it is key for newly covered companies to anticipate this requirement by conducting an assessment of their transfer pricing policy, with the objective to adjust it if necessary and then document it appropriately.
This need for anticipation is all the more important as the taxpayer will now be bound by the content of the transfer pricing documentation, and that the minimum penalty applicable in case of failure to provide a compliant or complete documentation upon French tax authorities' request has been increased.
Enforceability of the transfer pricing documentation
The 2024 Finance Law introduced a new subsection to article 57 of the French Tax Code, specifying that discrepancies between the result actually generated by the company and the result that would have been achieved if the method described in the transfer pricing documentation had been properly applied is deemed constituting an indirect transfer of profits, unless proven otherwise by the company.
The burden of proof is therefore reversed in the event of a discrepancy between the company's results and the transfer pricing policy described in the documentation.
As a result, it is key for companies to appropriately document their transfer pricing policy, unless risking a near-automatic reassessment in case of discrepancy observed with its actual result.
Increased penalties for failure to provide compliant transfer pricing documentation
If a company fails to provide a compliant or complete transfer pricing documentation to the tax authorities upon their request, it is liable to penalties.
According to article 1735 ter of the French Tax Code, the fine applicable for each audited year may, depending on the seriousness of the breaches, reach 0.5% of the amount of undocumented transactions, or 5% of the reassessed amounts related to such transactions, whichever is higher. The law also sets a minimum penalty.
The 2024 Finance Law increased the minimum penalty from €10,000 to €50,000 per audited year, upon any formal notice issued by the tax authorities after January 1st, 2024.
The increase of this minimum penalty implies a dissuasive effect for companies which, confident in their transfer pricing policy, choose not to prepare their transfer pricing documentation. Indeed, considering tax audits generally cover three fiscal years, the minimum penalty would amount to a total of €150,000 in the event of failure to provide a compliant transfer pricing documentation.
Flash news tax law | Transfer pricing: Extension and strengthening of the French documentation requirements | 28 mars 2024
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