Worldwide transfer pricing reference guide 2014

France (continued)
Transfer pricing penalties (continued)
• A reassessment of the company’s taxable profit based on information the tax authorities possess, and
• The application of a EUR10,000 penalty for each year audited
• Failure to provide sufficient transfer pricing documentation under the framework of Articles L 13AA and L 13AB, FPTC will trigger
penalties from EUR10,000 (per audited year) up to 5% of the transfer pricing reassessment potentially identified afterwards (this may
change, please refer to the § below), depending on the “seriousness of the breach.” Such penalties are due per fiscal year audited.
The maximum penalty of 5% of gross amounts reassessed would be applied if the taxpayer does not have any transfer pricing
documentation. Further, it is not tax-based; i.e., the penalty for having no or insufficient transfer pricing documentation is calculated on
the gross amount reassessed and not on the (potential) additional tax due as a result of the reassessment.
Penalties generally applied as a result of a transfer pricing reassessment, regardless of compliance with transfer pricing documentation
requirements:
• After a transfer pricing reassessment is made, the additional profit is usually qualified as a deemed dividend. Accordingly, a withholding
tax is usually required (when a double tax treaty applies, the withholding tax depends on the relevant tax treaty provisions. 1 In the
absence of a specific tax treaty, the withholding tax nominal rate is generally 30%, and increases to 75% when the foreign entity is based
in a “non-cooperative” jurisdiction). Note that the effective rate can be grossed-up. An additional “distribution” contribution of 3% is also
applicable on the amount of the tax reassessments
• In case the transfer is treated as a deemed dividend, the tax authorities also usually apply a 10% penalty for absence of declaration of the
withholding tax. Such penalty is applied regardless of the good faith of the taxpayer
• Late interest payments are applied in case of tax reassessments made on the ground of Article 57 of the FTC. The ordinary late payment
interest rate is 0.40% per month (i.e., 4.8% per year)
• Supplementary penalties are applicable if the taxpayer committed a willful offence (formerly bad faith) (40%) (frequently applied by
the tax authorities) or to have acted fraudulently (80%). In these cases, taxpayers are denied recourse through MAP
In addition, the adjustment may result in a reassessment of other taxes and contributions, such as business/local taxes and employee
profit-sharing regimes.
Penalty relief
During a tax audit and before the tax authorities send the notice of reassessment, taxpayers, under the framework of Article L 62
FPTC, are allowed to correct their errors or omissions in consideration of a reduced late payment interest rate (3.36% per year), which
is equal to 70% of the ordinary late payment interest rate. In this respect, taxpayers must file a complementary tax return and pay the
corresponding additional taxes at the same time.
Documentation requirements
General transfer pricing documentation requirements (Article L 13B FPTC) where L13AA does not apply
The FTA may require information pertaining to transfer pricing in the course of an audit (based on Articles L 13 B and L 10 FPTC).
The nature of required information, and the short deadline under which a taxpayer may have to provide it, lead to a de facto
documentation requirement covering any French-based company. The following main documents are usually expected (the list is not
exhaustive and communication of the expected documents depends on the strategy decided at the time of the tax audit):
• Business and organizational structure overview
• Functional analysis, contracts, legal and management account information
• Method selected and economic analysis (including identification of competitors and comparables, depending upon the transfer
pricing method)
1 See the Dividends or the Other Income clauses.
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