France - Legislators focus on multinationals; functions, risks transferred abroad 

June 28: The chairman of the French Senate’s finance committee on 26 June 2013 addressed issues concerning tax audits of multinational companies, and stated that proposed legislation would be introduced to address instances in which multinational entities transfer functions and risks abroad to reduce the tax effects in France.

Finance committee chairman Philippe Marini stated that a review conducted for the first half of 2013, by the tax audit department of the French tax authorities, revealed that several multinational groups operating in various economic sectors—e.g., industrial companies, services suppliers, and in particular internet service providers—had conducted operations and had used tax mechanisms to reduce their taxation in France.

The findings also revealed difficulties encountered by the tax authorities in addressing these tax mechanisms during the course of the tax examinations.

In order to preserve public finance and restore an undistorted competition, and in applying principles of “comparable activity and equal taxation”, Marini expressed an opinion that now is the time to end the identified abusive practices.

It was reported that investigations conducted during recent months revealed the presence of “tax loopholes” in certain anti-abuse legislative provisions, and that the efficiency of the subject provisions has been reduced by globalization of the economy.

Proposed changes

Proposed legislation would aim at countering tax evasion and fraud by large multinational enterprises. The proposal would:

  • Provide that a transfer of functions and risks outside France would be viewed and treated as an “abnormal” transfer of profits abroad, unless the taxpayer could rebut this presumption (thus, the burden of proof would shift to the taxpayer)
  • Strengthen the anti-abuse law procedure by expanding its scope to transactions found to be essentially “tax driven” (as opposed to the current law, which looks at exclusively tax driven constructions)

KPMG observation

Tax professionals* in France note that this legislative change could represent France’s response to investigations being currently performed at the OECD level on under the “BEPS” (Base Erosion, Profit Shifting) initiative.

For more information, contact a tax professional at Fidal Direction Internationale* in Paris or the French KPMG Tax Center in New York:

Gilles Galinier-Warrain, French Tax Center, KPMG LLP, New York

+1 212-954-8605

Olivier Ferrari, Tax Partner

+33 (0)1 55 68 14 76

Patrick Seroin, Tax Partner

+33 (0)1 55 68 15 93

Audrey-Laure Illouz, Tax Director

+ 33 (0)1 55 68 14 95

* Fidal Direction International is a French law firm that is independent from KPMG and its member firms.

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