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1. In your jurisdiction, what are the legal bases for eliminating double taxation further to a transfer pricing reassessment (European Arbitration Convention, mutual agreement procedures provided for by tax treaties)? In addition to the procedures set forth by such tax treaties, is there any other (formal or informal) domestic procedure in your jurisdiction?
In France, the legal bases for eliminating double taxation further to a transfer pricing reassessment are either the mutual agreement procedures (hereinafter “MAP”) provided for by tax treaties
As of 1st January 2015, France has signed more than 120 tax treaties.
or the European Arbitration Convention
Convention of 23 July 1990 on the elimination of double taxation in connection with the adjustment of profits of associated enterprises.
(hereinafter the “EAC”).
Where applicable, a taxpayer can engage procedures simultaneously under both legal bases. The EAC is limited to transfer pricing matters involving associated enterprises established in two different European States. Applying for both procedures maximizes the protection against the risk of being deprived from the possibility to eliminate double taxation. Indeed, definition of a transfer pricing dispute may vary from one jurisdiction to another. In such a case, the mutual agreement phases pursuant to the tax treaty and the EAC would be carried out simultaneously.
There is not any other formal or informal domestic procedure in France that could lead to eliminate double taxation (except, of course, successfully challenging the reassessment issued by the French tax authorities (hereinafter “FTA”) in front of the FTA or courts). In France, the amount reassessed further to a transfer pricing reassessment characterizes a deemed distribution of profit subject (depending on the tax treaty applicable) to a withholding tax. An internal procedure (article L62A of the French Tax Procedure Code) allows under certain conditions taxpayers to obtain the cancellation of such withholding tax.
2. In addition – as the case may be – to the European Arbitration Convention, did your jurisdiction sign tax treaties with other States including an arbitration procedure? If yes, can you give the list of such States?
So far, a limited number of tax treaties signed by France contain an arbitration clause. Some of them are old tax treaties for which the arbitration phase is not mandatory and, to our knowledge, has not been implemented in practice (cases of the tax treaties with Germany and Canada). The latest versions of the tax treaties with the UK and Switzerland (signed in 2008 and 2009 respectively) provide for an arbitration phase if the case has not been resolved within a certain delay and if the taxpayer requests such arbitration. The tax treaty with the US provides for an “automatic” arbitration phase (provided certain conditions are met).
3. In your experience, in your jurisdiction, how long does it take generally to eliminate the double taxation under the European Arbitration Convention and/or mutual agreement procedures set forth by tax treaties (and/or the domestic procedure if it exists)?
In theory, MAP based on the EAC should be concluded within two years following the date it was introduced. If not, an arbitration phase starts as well as (in theory) a one-year period for eliminating double taxation. In practice, in 2014, 89 cases were pending at least two years after initiation. Reasons why cases were pending two years after initiation and had not gone to arbitration were the following: some cases were pending before court
, time limit had been waived with the taxpayer’s agreement
76 cases, same reference
or a settlement was reached but the case was awaiting for exchange of closing letters
seven cases, same reference
. In France, in 2014, among the cases pending two years after initiation, one was supposed to reach the arbitration phase
For the completion of a MAP in the framework of a tax treaty, according to the OECD the average time was around two years in 2013
Mutual Agreement Procedure Statistics 2006-2013
. For France, the average time for completing the procedure (or closing without eliminating the double taxation) amounted to 30 months in 2013
. Time for closing the procedure may vary depending on the complexity of the case, the efficiency of the taxpayer and the other State involved.
4. In your jurisdiction, what are the starting point and time limit to initiate a procedure to eliminate double taxation resulting from a transfer pricing reassessment?
Further to a transfer pricing reassessment, the starting point of such procedures is the date of receipt by the taxpayer of the notification of a reassessment (“proposition de rectification” in French) which is issued at the end of the tax audit.
If the procedure is initiated under the EAC, the time limit is three years from the notification. However, if the procedure is initiated under a tax treaty, then a specific deadline, which may vary between three months and three years, is set forth by the tax treaty. Some treaties do not provide for any time limit to initiate the MAP.
Further to the receipt of the notification of a reassessment, the taxpayer has a right to discuss it with the FTA, firstly in writing, and afterwards through several meetings with the FTA. Taxpayers generally discuss the reassessment with the FTA prior to initiating any MAP or procedure under the EAC.
5. If a reassessment is issued by your tax authorities, which State must receive the application for the international procedure to eliminate double taxation
The terms "international procedure to eliminate double taxation" mean the European Arbitration Convention or a mutual agreement procedure set forth by a tax treaty.(your State? the other State concerned? both States?)
In general, under the tax treaties, the case must be presented to the competent authority of the contracting State in which the entity which was exposed to a double taxation is a resident. Under the EAC, the French administrative guidelines recommend that the case be submitted to the competent authority of the contracting State which performed the transfer pricing reassessment. In practice, the MAP or procedure under the EAC should preferably be initiated in both States unless local regulations provides for specific guidelines.
6. What are the formal conditions to initiate an international procedure to eliminate double taxation? Is there a list of documents to provide? To which department of the tax authorities (name, address) must the request be sent?
Procedures to eliminate double taxation are subject to similar conditions whether they are initiated based on the EAC or a tax treaty. As indicated in the administrative guidelines
BOI-INT-DG-20-30-20-20140218, §180 for the European Arbitration Convention and BOI-INT-DG-20-30-10-20140218, §190 for tax treaty.
of the FTA, the request of a taxpayer must be sent to the Mission d’expertise juridique et économique internationale (hereinafter “MEJEI”) and include the following information:
Identification of the parties concerned by the transaction at stake;
Detailed information on the relevant facts and circumstances;
Identification of the taxes and fiscal years concerned;
Copy of the tax collection notice and notice of reassessment leading to the alleged double taxation;
Detailed information on the administrative and judicial procedures (if any) implemented by the parties;
Statement of the company committing to answer in a most complete and efficient manner to every reasonable and appropriately formulated questions by any competent tax authority and to keep necessary documents available to such authorities.
In the course of the procedure, additional information may be requested by the tax authorities.
Furthermore, in the framework of the EAC, the taxpayer must provide a summary of the reasons why relations between related parties did not differ from those which would be made between independent enterprises (and thus, why the reassessment is inappropriate).
The contact details of the MEJEI are as follows: Direction générale des finances publiques Mission d’expertise juridique et économique internationale Télédoc 918 Bâtiment Turgot – 86–92 allée de Bercy 75574 Paris Cedex 12 E [email protected]
7. In which cases would the competent authority of your jurisdiction refuse to engage/participate to the international procedure to eliminate double taxation?
The EAC only applies to transfer pricing issues. In that framework, the FTA reject requests for procedures based on such convention where the dispute is not relating to the arm’s length principle. For instance, the FTA consider that reassessments made on the ground of Article 39, 1-3° of the French Tax Code, which limits the deductibility of interest paid to affiliated companies, are not transfer pricing disputes in the scope of the EAC
. The related double taxation could therefore not be eliminated through the EAC.
Note also that, to engage or participate to a MAP or EAC, the taxpayer must prove that a double taxation occurred (the reduction of losses in one country is considered as a double taxation).
The application of serious penalties, or the behaviour of the taxpayer which showed clear will to not apply the principles set forth by the tax treaty, should deprive the taxpayer from the benefit of the procedures to eliminate double taxation:
Serious penalties are defined as criminal penalties, penalties for lack of filing a tax return after an injunction to file, bad faith or wilful default penalties, penalties for fraudulent practice, for opposing a tax audit, for hidden compensation or for abuse of law. However, a penalty for failure to provide a transfer pricing documentation does not qualify as a serious penalty.
Another case where the FTA should refuse to engage/participate to such international procedures based on tax treaties is where the taxpayer “on its own” eliminated the double taxation by a tax adjustment and clearly evidenced thereof that it did not consider procedures provided for by tax treaties
. The same could be applicable for the EAC
8. Is tax collection suspended during the procedure?
Tax collection is no longer suspended for procedures initiated as from 1st January 2014.
Should a taxpayer want to benefit from a deferral of tax collection, the only way is to introduce concomitantly a procedure in front of courts and apply for a tax collection deferral in that framework (however, such tax collection deferral requires that the taxpayer provides guarantees).
9. Assuming the procedure results in an agreement on a way to cancel double taxation, how is generally such agreement implemented in your jurisdiction?
In France, corresponding adjustments are generally performed over the years reassessed in the other State.
For corresponding adjustments in France further to a reassessment in the other State, no late interest is paid to the taxpayer.
In France, a transfer pricing reassessment has in principle two impacts: additional corporate income tax (primary adjustment) and, depending on the tax treaty applicable, a withholding tax on the resulting deemed distribution (secondary adjustment). Indeed, amounts transferred abroad characterize a deemed distribution subject to withholding tax in France. French withholding tax on deemed distributions can however be cancelled if the other party to the transaction “reimburses” the reassessment and, therefore, offsets the hidden distribution.
10. In your jurisdiction, is it possible to engage concomitantly an international procedure to eliminate double taxation and litigation in front of courts? If yes, is it necessary at some stage to abandon the litigation in order to conclude/finalize the international procedure?
It is possible to engage concomitantly an international procedure to eliminate double taxation and litigation in front of French courts. It should be noted that, in the framework of the EAC, the two-year time limit for the mutual agreement phase starts after the procedure in front of a court has been abandoned.
If the MAP/procedure under the EAC results in a solution which is acceptable to the taxpayer while a case is still pending in front of the courts, the execution of the agreement requires that the taxpayer withdraws its action in front of the courts.
Should an agreement be found between the competent authorities after a court decision is made, it could only be implemented if the French taxpayer waived its right to have the decision in force.
Even if a final decision was made by a French court, it is still possible to introduce a MAP but it could not result in an agreement less favorable to the French taxpayer than the final decision of the court.
11. Any other interesting aspect not addressed above?