French statutory and administrative approaches to transfer pricing (TP) are generally consistent with the principles set out by the Organisation for Economic Co-operation and Development (OECD). Article 57 of the French Tax Code (FTC) allows the French Tax Administration (FTA) to adjust the profits of a French enterprise if it has indirectly transferred profits to a foreign associated enterprise by an increase or decrease in the purchase or sale prices, or by any other means. If it lacks precise elements to support the assessment, the FTA determines the taxable profits by comparing those of similar enterprises exploited “normally”. French legislation also sets requirements in terms of TP documentation (Article L 13 AA and L 13 B of the French Book of Tax Procedures; FBTP), an annual TP declaration (Article 223 quinquies B of the FTC) and country-by-country (CbC) reporting (Article 223 quinquies C of the FTC), as well as public CbC reporting (see 8.2 Transfer Pricing Documentation). French administrative guidelines provide information on the application of the TP rules in France (FTA guidelines: BOI-BIC-BASE-80).

Article 57 I of the FTC, the domestic legal basis for TP, results from Article 68 of the Law of 31 May 1933, and its wording has since been kept almost unchanged.

In 1933, the French government indicated, in the explanatory memorandum relating to this article, that “Article 57 would tend to modify the tax base on industrial and commercial profits for French companies controlled by foreign companies or controlling them”.

Article 57 of the FTC applies in the case of transfer of profits by a French enterprise that either controls, is controlled by or is under the same control as a foreign enterprise. Article 57 does not further define the notion of control/dependence. It follows from case law and administrative guidelines that situations of legal dependency, either directly or indirectly, are covered. Such situations include the following:

• an enterprise holds a predominant part of a company’s capital in another country or the absolute majority of the voting rights; and
• an enterprise exercises, directly or indirectly, decision-making powers in another company.

Article 57 also covers situations of “de facto control”, where one enterprise is under the control of another, either as a result of contractual provisions or because the actual conditions of their relationships are such that the first enterprise has the power to impose unfavourable economic conditions on the second.

The FTA does not need to establish the existence of control between a French and a foreign enterprise if the latter is established in a foreign country or territory with a privileged tax regime (ie, the foreign enterprise is subject to corporate tax at a rate lower than the 40% corporate tax rate that would have been applied if it had been taxable in France), or in a noncooperative state or territory (list published regularly).

While the OECD Transfer Pricing Guidelines are not directly binding under French law, the FTA generally follows the OECD guidance. In particular, the OECD-recognised TP methods – ie, the comparable uncontrolled price (CUP) method, resale price method, cost-plus method, transactional net margin method (TNMM) and transactional profit split method – are referred to in its published administrative guidelines, and are accepted and used by the FTA during audits (FTA guidelines: BOI-BIC-BASE-80-10-20).

TP methods are not expressly referred to in French law. However, administrative guidelines state that in addition to the five OECD-recognised methods, any method adopted by an enterprise may be considered admissible if it is justified, consistent with the functions performed and the risks assumed, and if the remuneration complies with the arm’s length principle (FTA guidelines: BOI-BIC-BASE-80-10-10 §130).

French law does not provide for any hierarchy of TP methods. The French administrative guidelines refer to the OECD’s “most appropriate method” concept.

The use of ranges or statistical measures is not required per se under French law. However, the French administrative guidelines state the following:

“In some cases, it is possible to apply the arm’s length principle on the basis of a single figure (examples: a price or a margin). But in general, the sample of comparable companies is made up of companies with different profitability ratios. The company will therefore have to position itself in relation to these companies from the selected panel. A statistical distribution of the companies in the selected sample should then be made using the median and quartiles.

In the absence of evidence to support the selection of a particular point as the most appropriate, it is customary to consider the median as the arm’s length remuneration towards which the company should aspire for its intra-group transactions. However, any point within the ‘arm’s length range’, which constitutes a price range representing the conditions of an arm’s length transaction between related companies, is considered acceptable when the results of the study used to establish it are characterized by a high degree of reliability.

Remark: In practice, it is common to use as the arm’s length interval the interquartile range”.

See 14.2 Significant Court Rulings for further details.

French law does not expressly require comparability adjustments. Administrative guidelines indicate that when searching for comparables, comparability adjustments are required for significant differences between the functions carried out by the controlled enterprise and the set of independent entities to which it is compared (FTA guidelines: BOI-BIC-BASE-80-10-10 §260). In practice, comparability adjustments are generally well accepted by the FTA to the extent that they improve comparability.

The FTA states that “There is no specific legislation or regulation on transactions involving intangibles but the French administrative doctrine provides some general guidance in this respect” (OECD, France Transfer Pricing Country Profile, December 2021). In accordance with this statement, the information contained in the French administrative guidelines is rather limited, and the statements are general.

French law defines hard-to-value-intangibles (HTVI) by reference to the OECD definition (see OECD Transfer Pricing Guidelines 2022, paragraph 6.189) – ie, assets for which, at the time of transfer, there are no reliable comparables or sufficiently certain forecasts of future cash flows/revenues, or of the likely success of the transaction.

The Finance Law of 2024 introduced specific rules regarding HTVI into French law, most notably the following:

• the FTA can adjust the value of HTVI transferred between associated enterprises based on results subsequent to the financial year (FY) in which the transaction took place, except in certain limited cases;
• the FTA has an extended right of reassessment that expires at the end of the sixth year (instead of the third year) following the year in respect of which the tax is due; and
• the guarantee relating to the non-renewal of an audit or examination of accounts is not applicable (FTA guidelines: BOI-BIC-BASE-80-10-10 §232).

The French administrative guidelines do not provide detailed information on cost-sharing arrangements, but do recognise and define them as “an agreement allowing related enterprises to share the costs and risks of producing or obtaining goods, services or rights and to determine the nature and extent of each participant’s interest in such goods, services or rights” (FTA guidelines: BOI-BIC-BASE-80-10-10 §220).

Two situations need to be distinguished.

• Assuming the tax filing deadline has not expired, the taxpayer can make any adjustment to its tax returns before the deadline for income tax reporting.
• Assuming the tax filing deadline has expired, a taxpayer can file amending tax returns if the TP adjustments are a result of an omission or an error committed at the FTA’s expense; in this situation, the taxpayer will be subject to late-payment interest (possibly reduced) and (potentially) penalties. A taxpayer can submit a claim (which can be in the form of an amending tax return) to the FTA if the TP adjustments are a result of an omission or an error committed at its own expense. See 13.1 Options and Requirements in Transfer Pricing Controversies regarding the timing of the submission of such claim.

In case of TP adjustments, the profits deemed to be transferred constitute distributed income for which withholding tax may be levied subject to the provisions of the bilateral tax treaty or directive (Article 111 c of the FTC).

Such withholding tax may be avoided provided that the taxpayer agrees to repatriate the sums corresponding to the adjustment within 90 days of receiving the proposal of reassessment.

France has one of the most developed tax treaty networks in the world, which allows exchange of information with over 160 jurisdictions. As such, France uses the exchange of information articles contained therein to share/obtain taxpayer information. France has been particularly active on this front: the FTA made 4,810 CIT-related requests in 2023.

When the FTA requests information concerning a taxpayer from foreign tax authorities before the statute of limitations has expired, subject to certain conditions, the normal statute of limitations period may be extended until the end of the year following that during which the FTA received a response to its request and, in any event, at the latest until the end of the third year following the one for which the initial statute of limitations period expired (Article L 188 A of the FBTP).

France is also party to multilateral treaties enabling easier exchange of information, such as the one regarding CbCR or the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.

France is also implementing the EU Directives on Administrative Cooperation (DACs), including those related to the following:

• the automatic exchange of rulings (DAC 3);
• mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements (DAC 6); and
• digital platform operators’ information and declaration obligations (DAC 7).

Article L 45 of the FBTP provides that the FTA can agree with another EU member state to initiate joint tax audits, though this remains rare in France: the FTA participated in eight joint tax audits in 2023.

France has an advance pricing agreement (APA) programme. The APA can be unilateral (agreement between the French competent authorities (CAs) and the taxpayer), bilateral or multilateral (agreement between the French CA, the foreign CA(s) and the taxpayer). However, the FTA has expressed a strong preference for bilateral APAs over unilateral APAs.

The legal basis for APAs is Article L 80 B 7° of the FBTP and the relevant tax treaty (see 7.4 Limits on Taxpayers/Transactions Eligible for an APA).

The APA request can cover any transactions between related enterprises under the meaning of Article 57 of the FTC or transactions between the head office and one or more of its permanent establishments.

APA programmes are handled by a specific bureau within the FTA called Bureau SJCF 4B Prévention et résolution des différends internationaux.

The APA process and mutual agreement procedures (MAPs) are dealt with by the same bureau. APAs and MAPs usually do not follow the same process, do not concern the same years and are not co-ordinated. However, when the procedures are interlinked, coordination is possible (see 7.8 Retroactive Effect for APAs).

Bilateral APAs may only be concluded with states with which France has signed a tax convention containing a provision of the type found in Article 25(3) of the OECD Model Tax Convention (FTA guidelines: BOI-SJ-RES-20-10 §20).

Unilateral APAs can be requested where the other state does not have an APA procedure, where the transactions involve too many states or where transactions concern specific issues or issues of limited complexity, but are a recurring source of divergent assessments (FTA guidelines: BOI-SJ-RES-20-20 §20).

The APA procedure starts with a preliminary meeting (ie, before the official APA request), during which the taxpayer and the French CA discuss the conditions in which an arrangement could be requested and examined. This preliminary meeting notably aims to review the opportunity for such APA, the type of APA considered, the potential scope of application, the documentation requirements and the provisional timing. The APA application should be filed at least six months before the first fiscal year in which the APA would become effective. However, upon express request, the French CAs can agree for the APA to apply to the fiscal year during which the application has been filed (and possibly to prior years; see 7.8 Retroactive Effect for APAs). The French CAs enter into discussions with the foreign CA. During the course of the APA process, access to all necessary documents must be given, enabling both CAs to understand the proposed TP policy.

There is no user fee charged by the French CA.

If accepted, the agreement is generally concluded for five years and can be renewed upon the enterprise’s request at least six months before the expiration of the initial agreement. See also 7.8 Retroactive Effect for APAs.

An APA can have retroactive effect provided that it is “expressly stipulated by the competent authorities” (FTA guidelines: BOI-SJ-RES-20-10 §220) – in practice, for a maximum of three years.

Additionally, in practice, if after the conclusion of a bilateral APA an adjustment is made in France or abroad that concerns an earlier period not covered by the bilateral APA, France would likely agree to open a MAP and apply in this procedure the elements on which it has agreed with the other jurisdiction involved in the bilateral APA, provided that the facts and circumstances are similar; see Making Dispute Resolution More Effective – MAP Peer Review Report, France (Stage 2).

General Penalties

The FTA may apply the following main tax penalties in the case of TP adjustments, in addition to late payment interest:

• a 40% “bad faith” penalty in case of errors or inaccuracies in tax returns resulting from a deliberate failure, increased to 80% in case of abuse of law, fraudulent behaviour or concealment of price; and
• a 10% penalty in case of late filing if the late tax return is filed by the taxpayer prior to any notice of the tax authorities or within 30 days after an initial official notice (mise en demeure), increased to 40% in case of a failure to file within 30 days after an official notice (the penalty may be increased by up to 80% in cases of concealed activity).

For notifications of proposed assessments issued after 24 October 2018, the FTA has to report to the prosecutor’s office factual elements that gave rise to a tax assessment over EUR100,000 and that lead to the application of any of the following:

• a 100% penalty in cases of unilateral reassessment (procédure de taxation et d’évaluation d’office);
• an 80% penalty in case of concealed activity (eg, undisclosed permanent establishment); or
• a 40% penalty where the taxpayer has already been subject to one of these penalties or to a complaint in the context of a tax audit during the previous six years.

TP Penalties

The FTA often applies a 10% penalty for failure to file a withholding tax return in case of characterisation of deemed dividends (See 5.2 Secondary Transfer Pricing Adjustments).

For taxpayers falling within the scope of Article L 13 AA of the FBTP and required to present complete TP documentation (master file and local file) upon the start of the audit, failure to do so entails the application of a penalty equal to the greater of these two amounts:

• 0.5% of the amount of the transactions still insufficiently documented after the formal notice; or
• 5% of the amount of the TP reassessments.

The above penalty cannot be less than EUR50,000 per fiscal year, or EUR10,000 for offences (ie, failure to present complete TP documentation) committed before 1 January 2024 (Article 1735-ter of the FTC).

For taxpayers not falling within the scope of Article L 13 AA of the FBTP, limited TP documentation is required. Failure to provide it upon request leads to a penalty of EUR10,000 per fiscal year (Article 1735 of the FTC).

Failure to file a TP disclosure form entails the application of general penalties of EUR150 and a penalty of EUR15 per omission or inaccuracy, and cannot be lower than EUR60 or higher than EUR10,000 (Article 1729 B of the FTC).

Failure to file a complete CbC report (CbCR) entails the application of a penalty up to EUR100,000 (Article 1729 F of the FTC). Omission or inaccuracy is subject to the same penalties as for the TP disclosure form.

In France, the CbC reporting requirements are separate from the TP documentation requirements.

TP Documentation for Large Enterprises (Master File and Local File)

The outline of the TP documentation required for large enterprises under Article L 13 AA of the FBTP follows the OECD/G20 Base Erosion and Profit Shifting (BEPS) Action 13 recommendation on the master file and local file.

An OECD master file and local file are required for legal entities established in France (including any French permanent establishments of foreign enterprises) that meet any of the following thresholds:

• (i) annual sales revenue or total gross assets on the balance sheet equal to or higher than EUR150 million (EUR400 million for FYs opened before 1 January 2024);
• (ii) ownership at the end of the FY, directly or indirectly, of more than 50% of the capital or voting rights of a legal entity – ie, a legal person, organisation, trust or comparable institution, whether established or constituted in France or outside France – that meets one of the conditions set forth under point (i);
• (iii) more than 50% ownership of the capital or voting rights at the end of the FY, directly or indirectly, by a legal entity meeting one of the conditions set forth under point (i); or
• (iv) membership of a French tax-consolidated group that includes at least one legal person meeting one of the conditions set forth under point (i), (ii) or (iii).

Enterprises that meet any of the above-listed criteria should provide the FTA (upon request) with documentation that justifies the TP policy applied for transactions of any nature carried out with foreign associated enterprises; this also includes transactions between headquarters and branches (FTA guidelines: BOI-BIC-BASE-80-10-20 and BOI-BIC-BASE-80-10-40).

For FYs beginning on or after 1 January 2024, where the TP method deviates from the one provided for in the documentation made available to the FTA, the difference between the profits and the amount it would have reached if this documentation had been respected is deemed to constitute a transferred profit within the meaning of Article 57 of the FTC, unless the taxpayer demonstrates otherwise.

TP Documentation for Other Enterprises

Article L 13 B of the FBTP applies to enterprises that do not fall within the scope of Article L 13 AA. It provides that if – during a tax audit – the FTA gathers elements entailing a presumption that an enterprise has transferred profits abroad, within the meaning of Article 57 of the FTC, it may request information and documents specifying the following:

• the nature of the relationships falling within the scope of Article 57 of the FTC between this enterprise and one or several enterprises exploited outside France or companies or groupings established outside France;
• the method applied to determine the pricing of industrial, commercial or financial transactions, which it carries out with the enterprises, companies or groupings mentioned under point (i) and supporting elements as well as the counterparts granted, if any;
• the activities performed by the enterprises, companies or groupings referred to under point (i) in connection with transactions mentioned under point (ii); and
• the tax regime applying to the transactions mentioned under point (ii) and carried out by enterprises exploited abroad, or companies or groupings mentioned under point (i) in which it owns, directly or indirectly, the majority of the capital or of the voting rights.

Country-By-Country Requirements

The CbCR requirement (Article 223-quinquies C of the FTC) is largely inspired by the OECD/G20 final Action 13 report, Transfer Pricing Documentation and Country-by-Country Reporting, released in 2015. The scope and application of this requirement are specified in Article 46-quarter-0 YE of Annex 3 to the FTC. The French CbCR has to be filed by the following two types of entities.

• French parent companies that are within the scope of this requirement (ie, they are legally required to establish consolidated accounts; own or control, directly or indirectly, one or more foreign entities or branches; and realise an annual consolidated revenue of EUR750 million or more) for all the consolidated subsidiaries and branches.
• French subsidiaries of foreign groups, if the foreign parent company would pass the threshold if it were established in France but is not subject to a similar obligation in its own jurisdiction and/or if the country of the foreign parent company does not have an agreement in force with France allowing the automatic exchange of CbCR with the French authorities. In such cases, it is still possible for the French subsidiary to avoid the requirement to file the CbCR, if it can demonstrate that the group’s CbCR has already been filed by another group entity situated either in France or in another country that has an agreement in force with France allowing the automatic exchange of CbCR with the French authorities.

Article 46-quarter-0 YE of Annex 3 to the FTC lists the required information to be provided in the CbCR.

Public Country-By-Country Requirements

France transposed European Directive 2021/2101 on public CbCR, applicable to FYs opened on or after 22 June 2024, requiring certain companies and branches to publicly disclose certain information (largely aligned with the CbCR) relating to corporate income tax (Ordinance 2023-483 of 21 June 2023).

French statutory and administrative approaches to TP are generally consistent with the principles set out by the OECD. Article 57 of the FTC is a similar provision to Article 9 of the OECD Model Tax Convention. The OECD Transfer Pricing Guidelines are not directly binding under French law. However, the FTA makes express reference to them. In particular, the five OECD-recognised TP methods (see 3.1 Transfer Pricing Methods) are accepted and used by the FTA. The FTA increasingly refers to the OECD Transfer Pricing Guidelines in its published doctrine and in tax audits (FTA guidelines: BOI-BIC-BASE-80-10-20).

There are no circumstances under which the French regulations contemplate a departure from the arm’s length principle.

The impact of the BEPS project on the French domestic TP landscape is described below. Other important issues such as hybrid entities, controlled foreign companies (CFCs) and permanent establishment are excluded.

Action 1: Addressing the Tax Challenges of the Digital Economy

The final report on Action 1 did not provide for specific recommendations. The FTA has aggressively audited digital economy players in France. The FTA typically argues that marketing and sales support entities of digital companies create dependent agent permanent establishments in France. In a recent Conversant/Value Click case, the Administrative Supreme Court ruled in favour of the FTA. France also introduced a “tax on certain services provided by large companies in the digital sector”, effective since 1 January 2019. See also 9.4 Impact of BEPS 2.0.

Action 4: Limiting Base Erosion Involving Interest Deductions and Other Financial Payments

In line with Action 4 recommendations, and in application of the EU Anti-Tax Avoidance Directive (ATAD) (Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market), the deductibility of net financial charges is capped at the higher of 30% of the adjusted earnings before interest, taxes, depreciation, amortisation and gains or losses subject to reduced tax rates, or EUR3 million per fiscal year.

Action 5: Countering Harmful Tax Practices More Effectively, Taking Into Account Transparency and Substance

French TP documentation provisions include a requirement to provide the FTA with a list of cost contribution arrangements, copy of APAs and TP rulings that affect the results of the audited enterprise. In addition, France exchanges rulings and APAs in the application of Council Directive (EU) 2015/2376 of 8 December 2015 amending Directive 2011/16/EU on mandatory automatic exchange of information in the field of taxation, and through tax treaties. Furthermore, the French IP box regime has been revised (Article 39 terdecies of the FTC) and the limitation of deductibility of payments made to foreign recipients benefitting from a favourable tax regime has been modified (Article 238 A of the FTC).

Action 13: Guidance on TP Documentation and CbCR

France has implemented the OECD TP documentation recommendations and the CbC reporting minimum standard.

Action 14: Making Dispute Resolution Mechanisms More Effective

France applies the EU Directive and the EU Arbitration Convention, and has tax treaties in place containing MAP clauses and – in some cases – arbitration clauses. In addition, modifications are being made through the multilateral instrument (see Action 15).

Action 15: Developing a Multilateral Instrument to Modify Bilateral Tax Treaties

France signed the multilateral instrument and submitted its instrument of ratification to the OECD on 27 September 2018 to implement tax-treaty-related measures provided by the BEPS reports. France opted for part IV, related to arbitration.

France supports the ongoing BEPS 2.0 work on the tax challenges presented by the digitalisation of the economy, in particular the two-pillar approach.

Pillar One

France has supported and taken part in discussions related to Pillar One. To date, France has not issued official positions concerning implementation. FTA Guidelines clarifying France’s position on Amount B are expected to be released.

Pillar Two

France has transposed into its domestic law Directive (EU) 2022/2523 ensuring a global minimum level of taxation, which itself incorporates the OECD Pillar Two Model Rules. The income inclusion rule and qualified domestic top-up tax apply to FYs beginning on or after 31 December 2023, and the undertaxed payment rules apply to FYs beginning on or after 31 December 2024. Further amendments and additions to the Pillar Two rules were introduced into French law with the Finance Law of 2025, to take into account the OECD’s 2023 administrative guidance. The OECD’s 2024 and 2025 administrative guidance has not been incorporated into French law. The first FTA guidelines are expected to be released in 2025.

Low-risk entities are possible subject to consistency with functional analysis and, in particular, the risk control function. In the case of low-risk entities, the TNMM is often the most appropriate method.

The UN Practical Manual on Transfer Pricing was drafted by a group of experts acting in their personal capacity and endorsed by the UN Tax Committee. It is not binding under French law. In contrast to the OECD Transfer Pricing Guidelines, there is no reference to the UN Manual in the French administrative guidelines, and recourse thereto during tax audits is not common. However, for treaties concluded between France and non-OECD economies, the UN Practical Manual may prove a useful interpretation tool.

TP Documentation

While not a safe harbour per se, the TP documentation rules provide for a simplification measure. Assuming that, for a given category of transactions, the aggregated amount is below EUR100,000, the TP documentation should mention the transaction, but there is no need to present a detailed analysis of it in the TP documentation. This does not protect the taxpayer from any reassessment.

Low Value Added Services

For low value added services, the EU Joint Transfer Pricing Forum (JTPF) published guidelines that include a reference to mark-ups usually applied for routine services (3% to 10%; often 5%) (Communication 2011/16 from the Commission on the work of the JTPF from April 2009 to June 2010, including proposed guidelines on low value adding intragroup services).

In practice, such mark-up rates are often accepted for low value added services, although they have not been officially recognised as providing a safe harbour and should be applied only after careful review of the nature of the services.

Furthermore, the OECD provides specific guidance relating to a particular category of intragroup services, referred to as low value adding intragroup services, and suggests that a cost plus 5% safe harbour rule may be appropriate for these services (Chapter VII, Section D of the OECD Guidelines, §7.61). While France has not taken any formal position on the implementation of such a safe harbour in its domestic legislation, the French administrative guidelines indicate that – for TP documentation – a reduced description is sufficient for intragroup services, referred to as low value adding intragroup services under the OECD Guidelines.

Interest Rate

Interest paid to related parties by a French taxpayer is tax deductible up to the amount of interest paid at an interest rate that does not exceed the annual average rate of interest charged by French financial institutions on variable interest rate loans to enterprises with a duration of two years (Article 39-1,3° of the FTC). This interest rate is determined by the central bank of France and published every quarter in the Official Journal. The list below provides the maximum allowable interest rates for the last four quarters (FTA guidelines: BOI-BIC-CHG-50-50-30):

• first quarter 2024 – 5.97%;
• second quarter 2024 – 5.90%;
• third quarter 2024 – 5.76%; and
• fourth quarter 2024 – 5.37%.

This limitation does not apply if the debtor can prove that the rate paid is the market rate (ie, the interest rate that it could have obtained from independent financial institutions under similar circumstances).

French legislation does not provide specific rules governing savings arising from operations in France.

There are no notable unique rules or practices applicable to TP in France.

There are no specific rules governing financial transactions, but the FTA published practical guidelines in January 2021 covering the determination of interest rates for intragroup loans. The principles illustrated via practical examples are generally in line with Chapter X of the OECD Guidelines.

While customs and TP valuations answer to independent sets of rules, they are necessarily interrelated. Indeed, in setting the TP of imported or exported goods, multinational companies make choices that have an immediate and direct effect on the customs value, which is the tax base to determine tax and customs duties due upon import.

The valuation methods for TP differ from those existing for customs purposes. However, the guidance on customs valuation and TP published on the French Customs’ website indicates that TP may be used as a valuation method for customs purposes to the extent that the relationship between the parties does not affect the price. Appropriate documentation will be needed to support the price of the transaction.

Year-end adjustment could impact import price and lead to higher or lower duties. The guidance indicates that in case of TP adjustments, the importer may declare a provisional value at the time of import and request the value be adjusted retrospectively once the final TP is known. Simplification exists to avoid retroactively adjusting the customs value declared at the time of import, provided that an adjustment ratio determined with French customs is added to the declared price. In any event, prior authorisation from French customs is required.

During the authorisation application process, and in the absence of simplification, French customs collect information from the importer to agree on the provisional value to declare at the time of import, based on the importer’s situation. A financial guarantee will be required to cover the customs duties potentially due until the customs value is declared final. Additionally, French customs may determine, during that process, whether the TP can be used as the transaction value to declare goods to customs, or if an alternative method of valuation is required.

In addition, following the Court of Justice of the European Union’s ruling on the Hamamatsu case (in which the Court ruled that a transaction value composed of a TP that is subject to a retroactive TP adjustment cannot form the basis of the customs value when it is not known at the time of the import whether the adjustment would be made up or down), French customs have not amended their policy regarding TP adjustments as they take the view that retroactive adjustments are permissible as long as these have been authorised prior to import operations. French customs’ position may change once the matter has been discussed at the EU Valuation Committee and the EU member states have agreed on how to implement the judgement.

The co-ordination between customs and TP rules considerations is a key topic for taxpayers. Interactions between the rules should be considered, and their evolution carefully monitored.

Administrative Appeal Process

Several forums for administrative appeals are available to the taxpayer further to receiving a notice of proposed reassessment:

• the chief inspector (chef de brigade) has responsibility for the team that has conducted the tax audit operations – they generally monitor the tax audit operations and provide support to the field inspector;
• the departmental chief (interlocuteur départemental) has responsibility for all the brigades in a given area; and
• the tax committee (commission départementale/nationale des impôts directs et des taxes sur le chiffre d’affaires) is only consultative (ie, its opinions do not have binding powers on the tax audit team) – however, a positive opinion can constitute a strong argument before the courts if litigation is initiated.

If any of these procedural steps has been requested, the collection of the adjusted amount of tax is postponed until these avenues of recourse have been exhausted.

Once the tax collection notices have been received by the taxpayers, following the reassessment procedure, taxpayers are entitled to file a contentious claim with the FTA to once again request the withdrawal of the reassessment. Such a claim is mandatory before appealing against an assessment before a court (Article R 190-1 of the FBTP). The time period within which the taxpayer can file a claim would generally expire on 31 December of the second year following the year of the receipt of the tax collection notice or the payment of the tax.

The FTA will review the claim and have the right to change the stated legal basis for the reassessment, as well as reduce or cancel the reassessment.

If the FTA responds to such a claim, or if there is no response from the FTA after six months, the case can be taken to court.

Payment of Tax Before Going to Court

In principle, once tax collection notices have been issued, the taxpayer has to pay the tax due before lodging a claim before the FTA (administrative phase). Then, a refund may be granted to the taxpayer if a court invalidates the reassessments.

Having challenged the proposed tax assessments, and during the pre-litigation phase of the procedure, the taxpayer may claim the benefit of the deferral of payment of the tax due until a decision is granted by the court, provided sufficient financial guarantees are given (Article L 277 of the FBTP).

The FTA therefore sends the taxpayer a request to enter into or provide guarantees supporting the deferral of payment that was claimed. The provision of guarantees is required for any payment deferral. The FTA is required to examine all the proposed guarantees.

If the taxpayer obtains the payment deferral, and if the lower tax court rejects its claim, the taxpayer will have to pay the reassessed tax, late-payment fees and penalties, as well as additional late-payment interest. Conversely, the taxpayer will be entitled to a refund of the guarantee fees. If the taxpayer decides to pay immediately after receiving the tax collection notice, and if the lower tax court upholds the right to its claims, it will be entitled to a refund of the sums paid, plus late-payment interest.

Competent Courts

TP cases are heard by the geographically competent lower administrative tribunal (tribunal administratif), the geographically competent Administrative Court of Appeal (Cour Administrative d’Appel; CAA) and the French Supreme Administrative Court (Conseil d’Etat; CE).

Appeal Process

If the FTA responds to a contentious claim, the taxpayer normally has two months to take the case to the lower administrative tribunal. If there is no response from the FTA after six months, the case can be taken to the lower administrative tribunal at any time with no time limit.

Written pleadings before the lower administrative tribunal are exchanged between the taxpayer and the FTA until the case is deemed ready to be decided upon by the tribunal. The procedure before the tribunal generally takes one to two years. A decision of the tribunal can be appealed before the administrative courts of appeal and ultimately before the Supreme Administrative Court. The Supreme Administrative Court can overturn a decision of the Administrative Courts of Appeal only if it is grounded on a procedural error or an erroneous interpretation of law; the Supreme Administrative Court does not consider the facts.

In principle, the decisions of the administrative courts are executable. A stay of execution can only be granted when the court considers that the execution of the decision would damage a party in a manner that would be difficult to subsequently remedy.

Precedents on TP in France are increasingly important.

Burden of Proof

In a Novartis case (CAA Paris, 25 June 2008, No 06PA02841; final), the FTA regarded as excessive the price paid by a French company to its Swiss parent for an active ingredient used by the French company to manufacture the finished products. The FTA relied on the fact that the resulting allocation of the combined profit margin of the two companies was disproportionate to the costs incurred by each of them. The Court did not support the FTA, noting that it had failed to compare the TP paid by the French entity with the price paid for comparable products sold by similar enterprises, and that it had not produced any analysis concerning the nature of the product or its production and commercialisation conditions, which would support an allocation based on relative costs incurred.

In a Man Camions et Bus case (CAA Versailles, 5 May 2009, No 08VE02411; final), the Court rejected the reassessment made by the FTA because it was based on European comparables, without demonstrating that the markets where they operated were comparable to the French market in which the taxpayer operated, while the taxpayer argued that the markets were not comparable, without producing a functional analysis for the proposed comparables.

In a Nestlé Entreprises case (CAA Versailles, 27 March 2012, No 10VE01171; final), the Court upheld the reassessments made by the FTA concerning the price at which mineral water bottles were sold by the French entity to its affiliated Japanese distributor. The FTA noted that the TP led the Japanese distributor to earn a 33% net profit margin while the other affiliated distributors were attributed a 6% net profit margin. The taxpayer argued that the 33% net profit margin was a temporary situation and that the FTA did not establish why it would not be at arm’s length. The FTA produced comparables to support an arm’s length range between 7.5% and 9.5%, adjusted up to 19% to take into account additional functions performed by the Japanese distributor as well as the higher resale price of the water bottles in the Japanese market. The Court regarded the FTA analysis as valid.

In a Société Unilever France Holdings case (CAA Versailles, 16 May 2013, No 11VE03123; final), the acceptability of a cost-plus determination based on standard manufacturing costs, which were lower than the actual manufacturing costs of the French plant, was in question. The Court considered that the FTA could not adjust the price of the manufactured products without considering market conditions. In this case, the Court did not regard the use of standard rather than actual costs as an abnormal management decision for the French manufacturer, as it enabled it to cover its fixed costs pending better plant efficiency.

In another Nestlé Entreprises case (CAA Versailles, 18 February 2014, No 11VE03460; final), the Court ruled that while the company Aquarel Europe’s association of the brand Nestlé with the brand Aquarel did not confer any benefit to the company, due to the costs of the necessary investments and low sales, this was insufficient to demonstrate the lack of use value of the Nestlé brand in the market penetration phase. Thus, the Court considered that the lack of profitability of the exploitation of a brand does not necessarily lead to the conclusion that it lacks use value and, therefore, invalidated the FTA’s reassessments.

In a Philips France SAS case (CE, 18 September 2018, No 405779; final), the French company provided R&D services to its Dutch parent company using a cost-plus method. The question was, in determining the cost base, whether the company should have deducted the subsidies it received from the French state for business investment projects. The FTA considered that the deduction for the calculation of the cost base constituted a price reduction and therefore a non-arm’s length transfer of profits. The Supreme Court ruled in favour of Philips, considering that the deduction made by a company of subsidies it had received from the state for R&D projects cannot be considered as allowing, by itself and independently from the level of the price resulting from this deduction in accordance with the calculation method provided by the contract, presumption of the existence of a transfer of profits abroad. On this basis, the Supreme Administrative Court decided that the FTA had not met its burden of proof to establish the existence of a transfer of profits.

In a Ferragamo France case (CE, 23 November 2020, No 425577, confirmed by CAA Paris, 30 June 2022, No 20PA03601), the Supreme Administrative Court ruled that flagship expenses incurred by a French distributor contributing to the value of the brand owned by its foreign parent may in certain cases constitute an indirect transfer of profits. Analysing the salary costs and certain expenses (particularly rent) borne by the French distributor, the FTA observed that the costs were “noticeably higher” than those incurred by the independent companies identified. As a consequence, the FTA issued a TP reassessment, considering that the surplus of expenses borne by Ferragamo France was an advantage granted to its Italian parent company, owner of the trade mark, and that this surplus was not compensated by the higher gross margin granted to Ferragamo France. The Supreme Court overturned the decision of the Court, which was in favour of the taxpayer, considering as follows.

Firstly, the FTA had established the existence of an advantage granted to an associated enterprise given that “supporting additional expenses of salaries and rents compared to independent companies was aimed at increasing the value of the Italian brand in a strategic market in the luxury goods sector”. Secondly, Ferragamo France did not evidence that it received any consideration for the advantage in question by merely asserting that it was profitable between 2010 and 2015.

Interquartile Range

In a TCL Belgium case (CAA Versailles, 29 December 2016, No 14VE02126; final), the Court ruled that a reassessment can only be performed if the price of a transaction (or the margin of the tested company, depending on the method applied) is outside of the interquartile range of the benchmark analysis, since the interquartile range is to be regarded as the arm’s length range. It also ruled that where the price of a transaction (or the margin of the tested company) is outside of this interquartile range, the tax reassessment amount has to be determined by increasing this price (or this margin) to the nearest limit of the interquartile range and not to the median.

However, in a GE Healthcare case (CE, 6 June 2018, No 409645; final), the Supreme Administrative Court ruled that, considering the particular circumstances of the case, a reassessment at the median of a benchmark analysis can be performed when the taxpayer’s results fall outside of the interquartile range.

Business Restructuring

In a Nestlé Finance International case (CAA Paris, 5 February 2013, No 11PA02914; final), the Court examined the FTA’s claim that the intragroup transfer by a French company, to its Swiss-related company, of its cash pooling activity without remuneration constituted an “indirect transfer of profits abroad”, to be reassessed. The Court ruled against the FTA. However, it did not address the question of whether there was a taxable transfer of activity that should have been compensated at arm’s length, but simply invalidated the assessment proposed by the FTA on the grounds that the comparability analysis performed by the FTA was not reliable.

In a Microsoft France case (CAA Versailles, 16 February 2012, No 10VE00752; final), a French enterprise, acting as a distributor, was converted into a commercial agent of an Irish-related entity, and was compensated with commission fees calculated as a percentage of sales (25%) or a reimbursement of its costs plus 5%, whichever was higher. The 25% rate was replaced with a decreasing rate and reduced after a period of five years, but the costs plus 5% guaranteed remuneration remained unchanged. The FTA challenged this decrease in the French agent’s commission rate. The Court cancelled the reassessment, ruling that a mere decrease in the commission rate did not justify a reassessment. The Court also rejected the comparables, which were proposed by the FTA, because they related to companies that assumed significantly greater risks than Microsoft France.

In a SA SOPEBSA case (CE, 9 April 2014, No 366493 and CAA Versailles, 12 June 2014, No 11VE00643; final), it was considered that the conversion of a distributor into a commissionaire did not entail a transfer of clientele.

In a Piaggio case (CE, 4 October 2019, No 418817, SAS Piaggio, confirmed by CAA Versailles, 6 July 2020, Nos 19VE03376–19VE03377), the Supreme Administrative Court ruled that the French distributor of Piaggio products had developed its own clientele, particularly due to its autonomous strategy of penetrating the French market. It considered that its conversion into a commercial agent led to a transfer of clientele and that the absence of remuneration of this transfer constituted an indirect transfer of profits abroad within the meaning of Article 57 of the FTC.

In a Bupa Insurance Limited case (CE, 21 December 2022, No 450796; final), the Supreme Administrative Court reaffirmed the application of Article 57 of the FTC to branches and then ruled that a branch could, in principle, develop its own customer base, even though it was not a legal entity separate from its head office. Applying the analysis grid used in the Piaggio case to this case, the Supreme Administrative Court ruled that, in the absence of commercial autonomy, the branch had not developed a distinct customer base, thus precluding any transfer between the branch and its head office as alleged by the FTA.

Financing

In a Société Wheelabrator Group case (CE, 10 July 2019, No 429426 and 429428; final), the Supreme Administrative Court confirmed the reference to the arm’s length principle, stating that “the rate that the borrowing company could have obtained from independent financial institutions or organisations under similar conditions is understood, for the application of these provisions, as the rate that such institutions or organisations would have been likely to grant it, taking into account its own characteristics, in particular its risk profile, for a loan with the same characteristics under arm’s length conditions”. It was also confirmed, in the opinion of the advocate general in this case, that the comparative reference intended by the legislator is the arm’s length principle as applied in TP. Finally, the Court pointed out that the borrowing company, which has the burden of proving the rate it could have obtained from independent financial institutions or organisations for a loan granted under similar conditions, may provide this proof by any means. To assess this rate, it may, where appropriate, “take into account the yield on bonds issued by undertakings in comparable economic circumstances, where such bonds constitute a realistic alternative to an intra-group loan in the circumstances under consideration”.

In a BSA Finances case (CE, 11 December 2020, No 433723), the Supreme Administrative Court ruled in favour of the company, specifying that a study of a borrower’s creditworthiness should not be systematically rejected on the grounds that the study was based on commercial software like RiskCalc, particularly insofar as the software is fed by the company’s own data and is based on sector-specific comparative ratios. This decision was recently confirmed by the CAA of Paris in the Willink case (CAA, 17 May 2024, No 22PA05494; final). The Court also concluded that the arm’s length nature of an interest rate can be demonstrated by breaking down the interest rate into several components.

In an APEX Tool case (CE, 29 December 2021, No 441357), the Supreme Administrative Court ruled that the identified comparable financial transactions do not need to be from the same industrial sector as the tested party insofar as they have the same creditworthiness. The French Supreme Administrative Court also stated that, notably, the creditworthiness of the borrower must be demonstrated considering the financial situation of the borrower and its subsidiaries – ie, consolidated account at the level of the borrower.

There are no specific rules, such as foreign exchange controls, restricting outbound payments in France.

There is no specific rule restricting outbound payments, but France has specific rules limiting the deductibility of royalty payments or interest payments to controlled entities.

There is no specific legislation regarding the effects of other countries’ legal restrictions.

The Department of Economy, Finances and Recovery publishes several reports online, including:

• a report on the fight against tax evasion and tax avoidance, available in French only – this report is usually annexed to the Finance Bill and provides useful TP audit outcomes; and
• a report on tax ruling activity, available in French only – this report provides useful information on APAs.

The latest statistics provide the following information on APAs in France:

• 51 APA requests were filed in 2023;
• 28 APAs were concluded in 2023, against 14 in 2022 and 16 in 2021; and
• on average, the conclusion of an APA request takes 37 months (41 months in 2022).

As regards TP audit outcomes, the latest statistics show a decrease in the amounts reassessed. In 2023, the amounts reassessed reached EUR2.3 billion, which is a decrease of 31% as compared to 2022. The report also states the following for 2023:

• in the 27 most important files, the reassessment exceeded EUR20 million, and it exceeded EUR100 million in seven of these files; and
• 31 cases considered under Article 57 of the FTC relate to transfers to countries or territories offering a preferential tax regime, representing a total of more than EUR130 million – the main jurisdictions involved are Switzerland, Luxembourg, Hong Kong, Ireland, Singapore, Malta, Mauritius and the United Arab Emirates.

In the past, the FTA tended to use secret comparables during tax audits. However, this practice is on the decline.

This is notably due to court decisions such as the Unilever/Elizabeth Arden ruling (CAA Paris, 7 December 2007, No 05PA02618). This case involved a French entity engaged in the distribution of cosmetics. To challenge the royalty fees paid to controlled entities, the FTA provided licence or distribution contracts with the names of the parties and the brand names hidden. The Court ruled that these comparables were not valid, being anonymous, as it was not possible to check whether the considered brands and perfumes had a comparable notoriety.