France - Enhanced transfer pricing documentation, penalty provisions 

November 21: Transfer pricing provisions included in the Draft Finance Bill for 2014 (passed by the National Assembly at the bill’s first reading) provide for:
  • An enhanced penalty related to transfer pricing documentation - When a taxpayer fails to reply or makes an incomplete reply to a formal notice to submit transfer pricing documentation, the penalty would be imposed at a rate of up to 0.5% of the enterprise’s turnover for each audited financial year (instead of the current penalty of up to 5% of the re-assessed amount).

    KPMG observation

    This enhanced penalty is intended to provide for greater taxpayer transparency and cooperation during tax audits. The minimum penalty of €10,000 would remain unchanged.


  • Information on rulings from foreign tax authorities - To expand information available for use by the French tax authorities concerning activities within taxpayer groups, the legislaton provides that taxpayers must include information in their transfer pricing documentation that discloses rulings issued by foreign tax authorities to related group entities.

    KPMG observation

    Taxpayers will need to exercise care regarding “confidentiality clauses” (if any) in rulings issued prior the effective date of this measure.


  • Analytical accounts and consolidated accounts - Based on turnover criteria (including companies within the scope of Article L13AA of the French tax procedures code), taxpayers must transmit to the French tax authorities their “analytical accounts” (typically, management accounts). All companies preparing consolidated accounts in accordance with the French Commercial Code must transmit this information to the French tax authorities.

    KPMG observation

    The Draft Finance Bill does not include details about the content of this requirement. Further guidelines are expected.


  • Transfer of functions and risks - French taxpayers would need to prove that they received arm’s length compensation when: (1) there has been a transfer of functions or risks to a related entity (or to any entity, if located in a “tax haven” jurisdiction), even if the French taxpayer ceases totally or partly to bear these risks or assume these functions; and (2) there is a decrease of at least 20% of operating profit over one of the two financial years following the year of the transfer (compared to the average operating profit of the three financial years preceding the transfer). This reversal of the burden of proof would not apply if there is a transfer / license of a single asset independently from the transfer of any risk / function. This measure would be applicable to transfers during financial years closed as from 31 December 2013 (i.e., retroactively).

    KPMG observation

    Tax professionals may urge groups to collect appropriate data to demonstrate that arm’s length compensation (i.e., market value) has been received in consideration for risks / functions transferred in light of this new measure.


  • Effect of MAP request - For any mutual agreement procedure (MAP) application made as from 1 January 2014, the measure allowing for automatic postponement of tax collection efforts would be repealed.

For more information, contact a tax professional with Fidal Internationale* in Paris:


Olivier Kiet, Partner

+ 33 1 55 68 1615


Pascal Luquet, Partner

+ 33 1 55 68 15 22


Kate Noakes, Partner

+ 33 1 55 68 16 57


Xavier Sotillos Jaime, Director

+33 1 55 68 14 85


* Fidal Internationale is an independent legal entity that is separate from KPMG International and its member firms.




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1801 K Street NW
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